- Facebook is the world's leading social media network; however, investors are worried that the stock has reached its full potential.
- The social media kingpin has staved off competition from Twitter, and is actually gaining market share.
- An impressive acquisitions portfolio sets them up for growth in the future.
With 1 billion monthly users, Facebook (NASDAQ:FB) is the king of social media. Their position is strengthened further due to their acquisitions, i.e. Whatsapp, Instagram, and Occulus VR. However, the mantra for investing is to buy low and sell high. Therefore, some investors want to know whether there is still room for growth in Facebook stock's value.
Facebook is a company which has continued to increase its mobile revenue. Its Q3 2015 mobile revenue increased to 78% of total revenue, highlighting the more mobile-focused approach that Facebook has undertaken.
Keeping to form, Facebook has a free cash flow of $1.41 billion, indicating strong ‘financial health’; a key metric to look out for when looking to invest long term.
Additionally, Facebook beat estimates in other areas of its Q3 results. Interestingly, revenue shot up from $3203mn from Q3 of 2014 to $4501mn for Q3 of 2015. In an increasingly competitive social media landscape, Facebook’s ability to increase revenue by such a big margin is impressive.
User base and growth
With social media companies, user retention and engagement is an important metric for predicting the growth of a company. In this regard, Facebook performs admirably. Facebook has a monthly active user base of 1.55 billion (desktop) 1.39 billion (mobile).
In comparison, Twitter (NYSE:TWTR) has had challenges with keeping users engaged. In fact Twitter is losing engaged users, and had to appoint Omid Kordestani; Google’s ex-adviser, in order to solve this issue.
Why is Facebook so far ahead?
1) Facebook has an algorithm which promotes content and allows great content to be seen by a wider audience. This algorithm measures how users engage with content, and either promotes it further or ‘holds it back’.
2) Facebook understands that videos tend to have the highest engagement rates; therefore video content is promoted more in the newsfeed. As a result, some social media celebrities and entertainers are choosing to upload their videos on Facebook instead of Youtube.
3) The groups feature on Facebook is much more streamlined than on other platforms. Moreover, as a result of users being recommended new groups to join based on their interests, and a consistent experience, users spend more time on Facebook than on other social media networks.
4) Facebook limits the ads shown to users, and has increased the cost of advertising on the site. Therefore, the user experience hasn’t been hampered. Plus, due to the fact that advertisers are rewarded when they publish engaging, and targeted ads, it is challenging to find one that is distasteful.
The aforementioned points all add to a good user experience while making sure that ads (major source of revenue) can continue to exist on the platform.
Facebook Stock Performance
As is the case when a stock continues to grow and beat estimates, some investors are wondering whether the stock has ‘peaked'. This is a valid concern, because at the end of the day people who are yet to buy Facebook want to have some confidence that once bought, the stock will grow.
Due to Facebook’s recent movements in becoming more than a social media company, they clearly have growth at the core of everything they do. For instance, Mark Zuckerberg recently announced plans to increase user figures and engagement in India. Moreover, he has the rather ambitious plan of bringing Facebook to all the regions in Africa.
Additionally, a look at Facebook’s acquisitions portfolio shows that Facebook has plans to be far bigger than just a social media empire.
When Facebook bought Instagram in 2012, the total users stood at 40 million; however, fast-forward three years and this figure stands at 400 million, surpassing Twitter. Plus, due to the fact that instagram is based on images and video, this presents an interesting revenue opportunity for Facebook in terms of ads.
Whatsapp is now the world’s most used messaging client. In fact, some analysts have speculated that it is partly responsible for Twitter’s struggles. Arguably, it has a better execution of Twitter’s unique selling point i.e quick e-messages.
Facebook’s acquisition of Occulus VR allows it to expand into the gaming magnet, and virtual reality holds the possibility for applications in various industries. Virtual reality is only limited by the imagination and ingenuity of developers.
Even though, there has been an increment in major aspects of Facebook Company as a whole, some still question Facebook’s ability to stay on top. When we look at their acquisitions, and their drive to implement them into their core products, and even brand out into other industries (Virtual reality); Facebook is well-placed to build an empire.
Moreover, Facebook’s growth, innovation, and thirst for crossing boundaries shows that they are a dog with a lot of bite.