Facebook Inc. (FB, Financial) ended 2016 in the green –Â up nearly 11%. The stock has been performing amazingly well this year as it is up more than 30% year to date, representing fresh all-time highs.
The primary reason behind the company’s impressive performance is the rising digital advertising trend. Among all the social network sites, Facebook holds the leading position with 1.97 million monthly active users (MAU), which clearly suggests that the company will continue inching upward in the future.
Facebook reported robust first-quarter results on May 4. For the first quarter, the social network giant logged earnings per share of $1.04, easily outstripping the analysts’ estimate by 18 cents. The company’s revenue came in at $8.03 billion, again beating the analysts’ estimate by $200 million. That figure represents a surge of 49.3% year over year.
Despite its gigantic size, the social network giant has managed to grow its revenue at an average of 49% over the past two years. The company’s advertising business continues growing at a robust rate with each passing quarter. In the most recent quarter, its advertising revenue surged 51% year over year, driven mainly by strong growth in the mobile ad segment.
Facebook’s mobile ad revenue increased to $6.7 billion, signifying a growth of 58% year over year. Most significantly, mobile ad revenue accounted for 85% of the company’s overall revenue in the first quarter.
According to a forecast report from eMarketer, the digital ad spending in the U.S. is projected to reach $83 billion this year, signifying a surge of almost 16%. Considering this, Facebook and Google appear to be in good positions to gain enormous benefits in the year ahead.
Google governs search whereas Facebook dominates display. The social network giant’s digital display market share is expected to grow to 39.1%Â of the overall digital display ad revenues this year.
On the other hand, Facebook also said its “Instagram” platform is performing much better than expectations. Instagram’s monthly active user base currently sits at 700 million, representing a sequential surge of 100 million users, which looks exciting. Furthermore, Instagram has more than 1 million active advertisers.
Instagram’s accelerated user growth was primarily due to the new feature called Stories, same as that of Snapchat’s Stories. It looks like Facebook made a smart move by integrating the Stories feature in its Instagram app as it has negatively impacted Snapchat’s growth.
Facebook’s Instagram platform is the only platform with less than 1 billion monthly active users. If Instagram continues at this rate, it will soon reach the 1 billion active users milestone.
Apart from this, Instagram’s chief competitor Snap (SNAP, Financial) is facing severe problems in India, one of the most lucrative markets. In India, Snapchat’s rating degraded to one star from five stars on the Apple (AAPL, Financial) App Store due to the allegation made by CEO Evan Spiegel.
As an outcome, this incident will certainly help Instagram steal a significant number of Snapchat’s users in the year ahead.
Summing up
After reaching its all-time lows in August 2012, Facebook has managed to reward shareholders with high returns every year. Moreover, it looks like the social network giant will continue rewarding shareholders in the coming year as well.
It is likely that Facebook’s monthly active user growth will slow in the coming quarters, but its Instagram platform is just getting started.
As an outcome, shareholders should continue holding the stock for more returns in the forthcoming years as it still has massive upside potential.
Disclosure: No position in the stocks mentioned in this article.
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