The company: Facebook, Inc. (FB) is a social media company that was launched in 2004 by Mark Zuckerberg and currently has a market cap in the mega classification. Since Facebook gained momentum it has become one of the, if not the most popular social media platforms year after year. The company has become global and continues to grow. Along with their main social media platform “Facebook”, the company also owns two other popular applications Instagram and WhatsApp, which are also growing at a fast rate and offer services and enjoyment that appeal to the general population.
Advantages: Facebook has owned most of the social media industry since 2010. A few other platforms have injected themselves into the industry as well such as Vine, Snapchat, Tik-Tok, and Instagram. These apps either thrive with Facebook, fade away and go under, or Facebook buys them and they become an even bigger success. The Facebook company has the team and cash to recognize what can be a success and can bring it to fruition. In the US, digital ad spending equals around 121B and is growing year over year. For media advertising, the world spends around 650B and that number is growing year over year. In 2020 Facebook had around 85B in revenue. In comparison to the revenue that is being spent in the US and all over the world, Facebook still has plenty of room to grow. With how dominating they are, I see consistent revenue growth as a high probability. Keep in mind how expensive and difficult it used to be advertising with magazines, billboards, televisions, radio, etc., Facebook has made advertising a lot more accessible. With that said, I would expect the revenue that was dedicated towards the more traditional methods to shift over to online and media methods. Facebook has also adapted its platform to stay relevant and innovative. For example, Facebook marketplace. It has taken the popular method to sell or buy items or services (as seen in Craigslist) but has taken it to a much-improved level. Facebook has done that with nearly every aspect of its services. Facebook was originally an exclusive service and was later adapted and used by nearly every person under 30 years old in the US. Over time it became popular with nearly all age groups and this expanded its potential. Although this company has gone through a handful of legal issues, its profitability and growth don’t skip a beat. That enunciates how effective their products and services are.
Disadvantages: The future for Facebook will more than likely be rough. I think this company’s earnings goingnegative is nearly possible, but I wouldn’t be surprised if the road is rocky. In the past few years, they have been tied up in a handful of legal issues. This is never good for a company. Privacy and monopoly-related lawsuits and issues are the most troublesome. When people learned about how their information is being used it upset a handful of users. Facebook's smart acquisitions have brought on monopoly lawsuits. I don’t think these will be successful but, in any case, this is distracting to the CEO and the company. One that could directly affect revenue and ad effectiveness is Apple’s new feature to restrict Facebook from accessing personal data which would hinder their ability to effectively advertise. To sum up my concerns, we are entering a new world of data and governments will be evolving to make sure our privacy is not impaired. Unfortunately, Facebook is caught up in the middle of it and they will have to fight and adjust to the adverse situations.
Valuation and current state: Common valuation metrics P/E, P/CF, PEG and EV/EBIT for Facebook are 30, 22.3, 0.91 and 24.5, respectively. These values aren’t particularly attractive, but with the amount of money flowing into the stock market, and the solid financial statements that Facebook has, you’re going to have to pay up for it. Speaking of the financial statements, the company has consistent growth revenue, FCF, net income, shareholder equity, cash, and the company has been buying back shares. All those attributes draw me to this company. I do see some potential with my DCF model but not enough to consider it cheap.
Final thoughts: I think this pick is interesting. It isn’t the common value play, but I do think this industry will see considerable growth in the next decade. I think Facebook could be an integral part of people’s lives worldwide. It’s hard for me to put a market cap value on the company since it’s already so high, but I think it still has room to grow. The company is going through a handful of legal, social, and business strategy complications. I think this could open some better buying opportunities in the future. If the right correction occurs I would take on a position. Possibly this summer when Apple pushes it’s new IOS update.
Links:
https://www.statista.com/statistics/264810/number-of-monthly-active-facebook-users-worldwide/
https://www.statista.com/topics/1176/online-advertising/
https://www.statista.com/topics/990/global-advertising-market/
http://financials.morningstar.com/income-statement/is.html?t=FB®ion=usa&culture=en-US
http://financials.morningstar.com/income-statement/is.html?t=FB®ion=usa&culture=en-US
https://www.statista.com/statistics/429036/advertising-expenditure-in-north-america/
https://vincos.it/world-map-of-social-networks/
https://www.businessofapps.com/data/facebook-statistics/#2
https://www.statista.com/statistics/241552/share-of-global-population-using-facebook-by-region/
https://www.theguardian.com/technology/2020/dec/10/facebook-faces-biggest-legal-battle-in-years-as-us-officials-launch-lawsuits
https://en.wikipedia.org/wiki/Criticism_of_Facebook
https://about.fb.com/actions/protecting-privacy-and-security/
No comments:
Post a Comment