Is Facebook Dead Money?

Facebook's advertising platform will continue to outperform in the upcoming quarters

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Nov 25, 2016
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Facebook (FB, Financial) has performed amazingly well throughout the past few years as its stock price has surged more than 300% from its all-time low.

The company has warranted its monstrous valuation by reporting consecutive robust quarter results. Most significantly, over the past four years, Facebook’s top line has been growing at an average of more than 45% per quarter, which throws light on the company's bright future.

In the third quarter, the company shared earnings per share of $1.09, easily beating the estimates by 12 cents. The revenue came in at $7.01 billion, outshining the consensus estimates by $90 million. Moreover, the revenue reported by the company represents a surge of 55% year over year.

The main reason behind the company’s staggering growth is its highly efficient advertisement platform. Facebook’s advertisement platform is continuously growing as it has become the best way for any company to advertise its products. For instance, in India, many small as well as large companies are using Facebook’s advertisement platform because it provides an option to pay for an ad according to their needs.

In the most recent quarter, the company’s management detailed that it has more than 4 million active advertisers on Facebook and approximately 500,000 active advertisers on Instagram. With time, the number of advertisers on both Facebook and Instagram continues to rise swiftly. On the other hand, more and more advertisers are using the full range of the company’s ad products.

Apart from this, since 2008, Facebook’s user base is growing at a healthy rate. In the third quarter, Facebook’s monthly active users base surged 16% year over year to 1.79 billion. Considering the massive size of the company, it looks quite surprising that the company’s user base is still growing at a rapid rate. As a result, the enduring growth throws light on the company’s mass-market appeal.

Most significantly, the company recently publicized a $6 billion share-repurchase program. As the company starts outlaying billions of dollars buying its own shares, stockholders should understand there is a lot of cash. Currently, the company has an astonishing $26.2 billion in cash as well as cash equivalents on its balance sheet, which represents a surge of $7.8 billion compared to that in 2015.

Summing up

All in all, Facebook’s cash balance is increasing at a rapid rate along with its ability to produce this cash. Moving forward, it looks like the company still has a lot of room to grow in the coming years. Stockholders should continue holding the stock.

Disclosure: No position in the stock in this article.

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