Facebook Inc (FB) Is the Only Social Media Stock That Matters

Advertisement

For four years now, every dip in Facebook Inc (NASDAQ:FB) stock has provided a buying opportunity. The recent weakness in FB stock from last week is no exception.

Facebook Inc (FB) Stock Is the Only Social Media Stock That Matters

Source: Shutterstock

Amidst a broader selloff in large-cap tech stocks, Facebook stock found itself down about 5% from its previous all-time high of $156. In context, that drop isn’t all that big.

Tesla Inc (NASDAQ:TSLA) gave back a whopping 20% over that period, and even Alphabet Inc (NASDAQ:GOOGL) dropped 8%.

But the fact is that there’s no real reason for the drop in FB stock, which is now making new all-time highs at $158. Concerns about valuation in large-cap tech make some sense, but it’s not as if Facebook stock itself is expensive.

The story that has led FB stock to rally for four straight years remains intact. The only change is that Facebook stock now offers a more attractive entry point.

Facebook Stock Isn’t Expensive

Again, the recent selloff in tech might make some sense. The so-called “FANG stocks” — Facebook, Amazon.com, Inc. (NASDAQ:AMZN), Netflix, Inc. (NASDAQ:NFLX) and Alphabet — rose almost 30% as a group through the first five months of the year. That’s simply a huge move for any large-cap stock. In fact, the four stocks added roughly $350 billion in market value in just five months.

In that context, it’s not hard to imagine that some investors might want to take profits. The combination of a big run and high valuations could make investors nervous.

But even today, FB stock’s 37% gain this year doesn’t make it expensive. Analyst estimates project $6.02 per share in 2018. Backing out the company’s $11 per share in cash, that implies a sub-23x forward multiple for Facebook stock.

That’s almost exactly the same multiple as The Coca-Cola Co (NYSE:KO). At Coke, sales actually are declining and earnings are expected flat this year. Facebook is growing, just hit 2 billion users, and still has market share to take in the online advertising space.

Unless there’s some unforeseen risk coming to Facebook over the next couple of years, that valuation is simply too cheap. And I’m skeptical there’s much, if anything, that can slow Facebook’s growth.

The Only Social Media Stock That Matters

For one, Facebook seems to have little, if any, competition. Snap Inc (NYSE:SNAP) has been cited as a potential threat, but its user growth already is stalling out. SNAP stock has declined some 20% in roughly six weeks, which suggests lower expectations for its growth. And SNAP’s pain is Facebook’s gain.

Twitter Inc (NYSE:TWTR) has seen its user growth stall out. And it hasn’t been able to convince advertisers that it’s a viable alternative to Facebook and Google. The online advertising world is becoming increasingly focused on those two platforms, which reportedly drove 99% of the growth in the U.S. market in 2016. And even there, Facebook looks better positioned, particularly given advertiser questions about YouTube content.

And that positioning is just off the legacy Facebook business. It doesn’t include the company’s apparent entry into streaming video. The contribution from fast-growing Instagram still appears to be relatively small. And Facebook Inc is barely monetizing WhatsApp. Facebook’s dominance in the social media space seems unquestionable at this point.

Buy Facebook Stock

It’s a somewhat simple case, admittedly. But it’s the same bull case that has worked in the market for decades. Owning a market leader is a good thing. Owning a market leader with a massive ‘moat’ is even better.

Facebook’s long-term opportunity is intact. Every additional user adds little in cost, which means every additional dollar in revenue adds quite a bit in profit. While 2 billion users is a huge figure, Facebook isn’t done growing. And it still has the opportunity to expand its empire into video and grow its smaller platforms.

When you combine that opportunity with an attractive valuation, you have a stock worth buying. And while a few investors have bailed on Facebook stock, smart investors will happily take their shares.

As of this writing, Vince Martin has no positions in any securities mentioned.

After spending time at a retail brokerage, Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets.


Article printed from InvestorPlace Media, https://investorplace.com/2017/07/facebook-inc-fb-stock-is-the-only-social-media-stock-that-matters/.

©2024 InvestorPlace Media, LLC