Facebook: Investing Strategies for 2019

Facebook, Inc. is a U.S. company that owns the homologous social network. The website has become very popular across the world, even though it has been banned in a few countries like China, Iran and North Korea. It has attracted a lot of criticism for inducing depression, being used to manipulate voters before elections, and for its addictive nature. Facebook now has more than two billion users. (1)

Zuckerberg interview. Sourch: Bloomberg.
Zuckerberg interview. Source: Bloomberg.

Its most important geographic regions by revenue are “U.S. & Canada” and Europe. These regions have recently experienced growth saturation.

In fact, growth in daily active users has stalled both in “U.S. & Canada” and in Europe. The areas that are more than compensating for this flat growth are the Asia-Pacific (in particular India, Indonesia and the Philippines) and the Rest of the World.

Facebook’s history

The website was launched in 2004 by Mark Zuckerberg, Eduardo Saverin, Andrew McCollum, Dustin Moskovitz and Chris Hughes while they were studying at Harvard University. (1) It first reached 100 million users in 2008. (2)

In 2012, the company went public. It was one of the most successful IPOs of all time, raising $16 billion and reaching an evaluation of $104 billion.

Facebook's listing day
Facebook’s listing day

In 2012, Facebook bought Instagram for $1 billion; a bargain considering that Snap, Inc., the firm that owns Snapchat, was listed for an evaluation of $33 billion. In 2014, Facebook also acquired WhatsApp for $19 billion.

Facebook’s financials

Facebook offers advertising banners on its website on a cost-per-click model. This is the most common way for websites to make money exploiting their online traffic. At the moment, the most famous and profitable online ad service is AdWords by Google.

As you can see from the chart below, Facebook’s revenue keeps on growing, thanks to its continuous growth in monthly users and to the efficacy of its advertising platform, which is very popular among businesses that want to advertise their products and services.

Facebook’s business is becoming more profitable every day.

In 2017, the firm’s ad revenue was half that of Alphabet (Google). In recent years, Facebook and Alphabet have dominated the Internet advertising industry.

Facebook’s stock performance

Facebook’s stock is outperforming other social media companies like Twitter and Snap, which have had problems increasing their ad revenue because of the lower return on investment offered by their ad platforms.

In the summer of 2018, after a dramatic (looking at the stock chart) earnings call, the firm lost $124 billion in one day (3). This occurred because management announced a revenue growth slowdown for the following years. The price drop corresponds to the “gap-down” in the chart below. Afterwards, the stock price continued to move downward and has recently fallen below $150.

Facebook’s strategies for 2019

The company has become a cash cow. Even though it has never paid a dividend, it could start to do so in the near future. The firm might also use its large amount of yearly-generated cash to acquire other tech companies as it did in the past with Instagram and WhatsApp.

Trivia

In 2010, The Social Network was released: the movie about how Facebook was created and the lawsuit involving its co-founders, concerning who first conceived the idea of the social network and who implemented it afterwards.

What do you think about Facebook’s future? Let me know in the comment section below.

Twitter: Investing Strategies for 2019.

Apple: An Overview and What to Expect in 2019

Check out my book: A Beginners’ Guide to Stock Investing.

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References

1. https://en.wikipedia.org/wiki/Facebook. [Online]

2. https://www.facebook.com/notes/facebook/our-first-100-million/28111272130/. [Online]

3. https://www.bloomberg.com/news/articles/2018-07-26/how-facebook-s-151-billion-rout-could-rewrite-the-history-books. [Online]

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