Facebook (FB) Stock Isn’t Expensive … It’s a STEAL

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A lot of investors gripe about Facebook Inc (NASDAQ:FB) stock, claiming it’s drastically overvalued.

Facebook FB Stock Isnt Expensive Its a STEALThey say that current investors will never get a decent return on their money; that it’s too faddish to cement itself as a cultural institution, or that it’s too early to call Facebook one today.

A lot of investors are wrong.

I have a lot of respect for value investing — Warren Buffett alone is enough to convince me of its merits — but the tragic flaw in value investing is that it chronically ignores explosive opportunities, like FB stock.

“Those Who Do Not Learn From History Are Doomed to Repeat It”

Remember the FB IPO? If you were alive and paying attention to the stock market in 2012, you remember it. It was easily the most hyped IPO of the year, and also easily the most disappointing. It debuted in May on NASDAQ at $38 per share, then promptly lost more than 50% of its value. By August, FB stock sat at $18 per share and people were calling it one of the worst IPOs in history.

It wasn’t pretty, but even if you bought Facebook stock at its IPO price of $38 per share, you’d be up more than 100% in less than three years. That’s due in a large part to the fact that FB has been monetizing mobile like crazy — something that no one had done. Most companies were still debating whether it was even possible.

Well, it’s possible. Facebook is proving that over and over again, each and every quarter.

FB is steadily gaining clout with advertisers at the expense of Google Inc (NASDAQ:GOOG, NASDAQ:GOOGL), Microsoft Corporation (NASDAQ:MSFT) and Yahoo! Inc. (NASDAQ:YHOO). Even better, its unique set of data is wider (in terms of user numbers) and deeper (in terms of the quality and type of data) than pretty much any other company in the world.

Although Facebook barely missed revenue expectations in its most recent quarter ($3.56 billion vs. consensus $3.58 billion), the revenue breakdown is far more revealing. As with GOOG, the vast majority of FB revenue comes from advertising. Unlike GOOG, the vast majority of FB ad revenue comes from mobile: 73% in the first quarter of 2015 vs. 59% just a year ago.

More importantly, Facebook is figuring out how to monetize its 1.4 billion monthly active users. Average revenue per user, or ARPU, in the U.S. and Canada soared from $5.85 in Q1 2014 to $8.32 a head in Q1 2015, an increase of 42%. You can count on FB continuing to improve ARPU in the Europe and Asia-Pacific regions as well. In Europe, ARPU rose 22%, from $2.44 to $2.99. In Asia-Pacific ARPU jumped 27%, from 93 cents to $1.18.

ARPU — not the P/E — is the single most important metric for FB stock moving forward. Facebook’s biggest opportunities lie outside the U.S. and Canada, where 1.2 billion of its 1.4 billion monthly active users live.

FB is dominating mobile, becoming a more sought-after advertising platform and monetizing more effectively. It’s still growing its user base, with major monetization initiatives for Instagram, Facebook Messenger, Whatsapp and Oculus all on the horizon.

When you think about it, you have to wonder why FB stock doesn’t trade for more than 31 times 2016 earnings.

As of this writing John Divine was long shares of GOOG stock and GOOGL stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/04/facebook-fb-stock-isnt-expensive-its-a-steal/.

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