- Facebook is the leader in the mobile web
- Facebook has successfully tested its August low
- Facebook has a great future ahead of it. Want in?
When markets go down, good stocks get cheap.
If you believe that what we’re going through is a market correction and not a crash or long-term bear market, Facebook (NASDAQ:FB) recently got quite cheap indeed.
That is because Facebook is considered a very, very good company. The company achieved a growth rate of 14% QoQ last month, with revenue of $4.04 billion against $3.54 billion in March. Profitability is rising even faster, with net income rising to $719 million from $512 million in the previous quarter.
Facebook regularly achieves operating margins of over 25%, and that’s while continuing to build out its own cloud data center network without resorting to debt. Facebook has become a cash flow machine, adding over $3 billion to operating cash flow in just the last quarter.
Even if it continues on its present trajectory, of course, Facebook stock is not cheap. You’re talking about paying about 20 times revenue, even at the Tuesday closing price of $86.67. The Price/Earnings ratio is a fat 91.
But you buy Facebook for the same reason you buy Amazon (NASDAQ:AMZN) or Apple (NASDAQ:AAPL) or Google -A (NASDAQ:GOOGL). You buy Facebook because it has a unique niche in today’s technology market. Facebook is the king of the mobile web.
CEO Mark Zuckerberg made the decision two years ago to stop focusing on the desktop and start focusing on monetizing mobile. The Instagram photo sharing app, acquired in 2012 for what seemed the mind-boggling price of $1 billion, has become the leading photo platform in the mobile space. Whatsapp, the mobile messaging app acquired last year for an even more mind-boggling $19 billion, is becoming the leading messaging platform in the mobile space.
What whets the appetites of investors is that Facebook is only now beginning to monetize these apps with ads, enhanced by such things as Face.com face recognition, the Branch conversation platform and Onavo mobile analytics. Since going public in May 2012, Facebook has done 28 acquisitions, including the Oculus virtual reality technology that has yet to come to market, and cost the company $2 billion.
If there is a great game in the mobile Internet, as there is in the broader sphere of technology, Mark Zuckerberg has won it, and he’s still just 31.
The price action in Facebook may also be telling us something about the broader market. Like that market, Facebook stock fell hard in August, going from $95 to $82.09 in a matter of days before recovering. The latest fall, which began on September 24 at another close near $95, only took it down to $86. Any chart maven will tell you, those rising loans are signs of a strong chart pattern.