The gloom and doom of the markets has an exception: Facebook Inc (FB).
Hey, the company has yet again posted a blow-out earnings report. And yes, Facebook stock is soaring, up about 13% to $107. That puts the market cap at a staggering $302 billion, which places the company among the top-tier of tech operators like Alphabet Inc (GOOG, GOOGL), Microsoft Corporation (MSFT) and Apple Inc. (AAPL).
Actually, in a recent article for InvestorPlace.com, I noted that Facebook stock looked attractive, especially in light of the wrenching correction in the markets. Although, I wasn’t anticipating that Q4 would be so strong.
OK then, so does FB stock still make sense right now? Or should investors hold off?
Facebook’s Earnings Results
Well, first of all, let’s take a deeper look at the quarter: Revenues jumped by 52% to $5.84 billion and earnings came to 79 cents per share, up 46%. As for the Street, the consensus was for revenues of $5.37 billion and earnings of 68 cents per share.
The fact is that FB continues to benefit from its global scale. Keep in mind that during Q4, the costs rose by only 21%. As a result, the company was able to generate a profit over $1.56 billion. By comparison, Twitter Inc’s (TWTR) revenues during its latest quarter were $569 million!
But the FB results should be no surprise. The company has extensive demographic information on a user base of 1.59 billion. Oh, over 90% of the monthly and daily users are on mobile and there are 100 million of hours of videos watched daily.
In other words, FB stock is a goldmine for advertisers (by the way, there are more than 2.5 million of those that currently use the platform).
While all this is great, the company is still making investments on longer-term initiatives, which should help keep the growth machine humming and bolster Facebook stock.
One of the efforts is virtual reality (VR), which involves the immersive headset called Oculus Rift. During the FB earnings call, Zuckerberg said:
“This Oculus launch is shaping up to be a big moment for the gaming community. But over the long-term, VR has the potential to change the way that we live, work and communicate as well. The launch is an important step towards the future, and we’re really looking forward to seeing how people use it.”
What’s more, another key potential driver for long-term growth is messaging. Consider that WhatsApp has a user base of nearly 1 billion and Messenger’s is at about 800 million. All in all, these platforms can be moneymakers with ecommerce as well payments services. Such things are already being done successfully by WeChat in China.
Bottom Line on Facebook Stock
The valuation on Facebook stock is certainly not cheap. Keep in mind that the forward price-to-earnings ratio is about 29X. Although, this is still not out of whack when compared to rivals. For example, LinkedIn Corp (LNKD) has a multiple 52X and TWTR’s is at 30X.
Besides, FB still has plenty of revenue levers. For example, there is the fast-growing video business, as well as Instagram, which has over 400 million users. And again, there is the long-term potential from properties like Messenger, WhatsApp and Oculus Rift.
In other words, for investors looking for a great way to play some of the megatrends in technology — such as mobile, video and VR — Facebook stock still looks like a very good choice.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
