Facebook Under A Microscope

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Facebook logos with purple background

Five days into 2018 and social media giant, Facebook [NYSE: FB], saw a 6% increase in its stock price.

Company shares have outperformed the industry in the last 12 months and performances continues to be consistent. They owe their success to critical factors such as an active user base, efficient and profitable mobile and online advertising through its most prized acquisitions.

However, investors reacted negatively to their recent shuffle of its news feed last Friday, which caused the stock price to fall by 5.20%. With a consistent price above US$180 since the beginning of the year, investors saw the stock price fall from US$187.77 to US$178.

Therefore, did Facebook’s shift in algorithm negatively impact the company’s performance for 2018?

Their strategy to display personal content first on its newsfeed rather than commercial clicks and views, was unwelcoming news for many investors who believed that this move would lower ad revenues. But with a financial track record like Facebook and its loyal daily users, the social media giant is expected to bounce back in no time.

Currently, Facebook is one of the most dominant social networks of all time. Facebook has over 2 billion active users monthly. The other social networking companies it acquired such as WhatsApp and Messenger boast another 1.3 million active users and Instagram 700 million. With a market that is not entirely saturated, Facebook has the potential to grow its user base even further.

In 2017, the company’s revenue grew by 45.4% and is expected to increase by 33.5% this year. The company prides itself on surpassing its earnings estimate quarterly, and 2018 should be no different.  For the last two-quarters, FB’s earning per share increased by 16.81% and 24.22% respectively.

With an increasing EPS, the P/E ratio should be lower than 24 which would make FB cheaper than the average stock in the S&P 500.
Moreover, with a robust balance sheet of US$38 billion in cash vs  US$280 million in debt, it is evident many investors are confident in the future of Facebook.

It is a great time to buy Facebook, wouldn’t you agree?

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