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James Li
James Li
Articles (540)  | Author's Website |

Gurus Continue Investing in Facebook in 2018

A deep look at top online media companies

Several gurus continued boosting positions in Facebook Inc. (NASDAQ:FB) over the past six months as the company offers good growth potential compared to other top online media companies.

Brief overview of online media industry

As the name implies, the online media industry includes companies that offer various online services, including online search, social media and music streaming. Table 1 lists the top online media companies based on industry weight.

Company

Industry weight

Alphabet Inc. (NASDAQ:GOOGL)

42.70%

Facebook Inc. (NASDAQ:FB)

30%

Baidu Inc. (NASDAQ:BIDU)

4.80%

Twitter Inc. (NYSE:TWTR)

1.80%

NetEase Inc. (NASDAQ:NTES)

1.70%

Spotify Technology SA (NYSE:SPOT)

1.60%

Table 1

Key financial metrics for online media companies include the click-through rate and the number of active users. Techopedia defines the former as “the number of times a user clicks a webpage advertisement compared to the total number of visitors viewing the ad.” Other key financial metrics for technology companies include the current ratio and gross margin, according to Investopedia.

Facebook has high profit margins and current ratios relative to peers

GuruFocus ranks Facebook’s profitability 9 out of 10 as the company’s profit margins and returns are near a 10-year high. Facebook’s operating margin is near a 10-year high of 52.28% and outperforms 97% of global competitors.

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Berkshire Hathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B) CEO Warren Buffett (Trades, Portfolio) mentioned that companies with high gross margins usually have strong competitive advantages. Facebook’s gross margin is near a 10-year high of 86.58% and outperforms 86% of global competitors.

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Facebook’s current ratio of 9.91 ranks second among the companies listed in Table 2. Although a current ratio above 3 can suggest inefficient use of current assets, creditors will still prefer a high current ratio to a low current ratio, ceteris paribus.

Company

Price-sales ratio

Gross margin

Operating margin

Current ratio

Alphabet Inc. (NASDAQ:GOOGL)

7.09

57.99%

25.00%

4.87

Facebook Inc. (NASDAQ:FB)

13.16

86.04%

50.07%

9.91

Baidu Inc. (NASDAQ:BIDU)

6.87

50.80%

20.56%

2.00

Twitter Inc. (NYSE:TWTR)

13.40

66.26%

6.01%

10.23

NetEase Inc. (NASDAQ:NTES)

3.98

44.56%

15.57%

2.27

Spotify Technology SA (NYSE:SPOT)

6.05

20.76%

-9.24%

1.02

Online media industry median

4.24

54.01%

-4.88%

1.54

Table 2

Gurus who have holdings in Facebook include Andreas Halvorsen (Trades, Portfolio), Steve Mandel (Trades, Portfolio), David Tepper (Trades, Portfolio) and Chase Coleman (Trades, Portfolio)’s Tiger Global Management. Steven Romick (Trades, Portfolio) and David Rolfe (Trades, Portfolio) also established positions in Facebook during the past six months.

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Disclosure: No positions.

About the author:

James Li
I am an editorial assistant and researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

Visit James Li's Website


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