Facebook Inc (FB) stock looked like it was consolidating last fall after a brisk run.
Let’s be honest, FB stock is up 35% in the past 12 months, and given the fact that it has a $305 billion market cap, you can excuse a few months of treading water.
It outperformed online advertising competitor Alphabet (GOOG, GOOGL) over that timeframe, which is pretty impressive.
The point is, FB is doing very well right now, like a fair amount of online and social media firms because it doesn’t have a lot of hard products that need design, engineering, manufacturing, storage, etc. It can grow market share and increase revenue in free photons, so the margins are huge.
Yes, its new virtual reality (VR) headset Oculus Rift is expected to be a major growth engine in 2016, but it isn’t the heart of the company; Oculus is set up to be an appendage. It’s one more avenue where FB can engage its potential — and current — subscriber base.
The biggest challenge FB had was monetizing its social media subscribers. And now that bandwidth is growing and smartphones are in the hands of the Millennials, it is cashing in on all its groundwork.
FB Stock Is Very Well Positioned
Sometimes, analysts voice their concern over FB’s spending, but FB has been very smart. It has built its core so that now it can expand without having to grow the business as demand and opportunities grow.
For example, it has $1 billion to build a data center in Forth Worth, Texas. The effort is designed to make sure reliability and security are unparalleled in the industry.
You may have heard that founder and CEO Mark Zuckerberg has stated that he is siding with Apple Inc. (AAPL) regarding backdoor security for law enforcement. You can be sure that all companies that are opposed to backdoors and value their clients’ privacy will be creating security that takes much of information management offline so it can’t be accessed by anyone, including themselves.
The point is, FB was ahead of the curve and the new site broke ground last summer.
Also, in a recent speech in Barcelona at the Mobile World Congress — the largest mobile-focused event in the world — Zuckerberg announced a new partnership with Samsung (which makes FB’s VR software) to incorporate FB’s new 360-degree video and live video streaming on VR devices.
What does this mean? It give people the ability to play games at the same table with people that are in different continents or states. You could go to a family reunion without leaving your house.
Yes, it’s a huge concept, but that’s what FB is good at and continues to nail. Maybe it will have a major flop some day and it will be necessary to re-evaluate its potential. But for now it keeps getting on base and building its lead.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool,PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
