When it comes to tech stocks, few are as polarizing as Facebook Inc (NASDAQ:FB). The social media site has become a dominate force in many people’s lives and it is virtually everywhere. As it has grown into an advertising giant, Facebook stock is up a whopping 202% since its IPO just four years ago.
FB stock may have truly become tech royalty in such a short amount of time. Yet it’s still widely hated.
But despite its torrid run and continued domination of social media, there are still plenty of detractors and bears waiting to pounce on Facebook. And some of their concerns are certainly justified. Facebook stock isn’t perfect and it does have some warts.
In the end, there’s equally as many bulls as there are bears when it comes to FB stock. But who is right and who is wrong?
Here are three pros and three cons to Facebook stock.
Three Pros to Owning Facebook Stock
Facebook Dominates Mobile: More of our lives increasingly revolve around our smartphones. And Zuckerberg & Co. knows that. They know it because a billion people only use their smartphones to check their Facebook accounts. One billion people. Which is why FB has made mobile a huge part of its plans.
The company tirelessly worked on developing its mobile suite of apps for users and developed products specifically designed for the smartphone environment. As users flocked to Facebook’s leading mobile platform, advertisers followed them. And soon, FB was developing complimentary advertising platforms.
Fast forward a few years and now more than 84% of Facebook’s total ad revenue comes from mobile and smartphone sources. That’s a far cry from having to warn potential investors that it had was suffering in mobile before its IPO. And while the percentage of mobile ad revenues may not increase, the dollar amounts will as more people leave the desktop computer behind and focus on their tablets and phones.
Plenty of Monetization Opportunities: Like rival Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) is doing with Google Maps. Facebook is starting to explore monetization opportunities at its other properties. Its Instagram photo sharing social media site has over 500 million monthly active users. FB has only started to data mine the billions worth of comments, photos and likes that these users post. The same could be said for its messaging apps: WhatsApp and Facebook Messenger.
Ads are just starting to pop-up on Instagram, but the potential could be huge as it rolls out new advertising programs. It’s a new and untapped market. And WhatsApp could even be larger. In the end, there’s a lot more room for growth for FB stock when the company seriously starts playing with its other websites and social media platforms.
Facebook Is a Cash Cow: Most overhead at tech firms that do software, run websites or similar activities is payroll. That means profit margins tend to be insane. FB is no different. That has allowed it to reap massive cash flows as users voluntarily give up their marketing information.
Facebook produced $2.5 billion in free cash flows last quarter and has roughly $26.1 billion in cash on its balance sheet. That’s insanely impressive considering it’s a young company. It also means that FB could actually start paying a dividend sooner than later.
Three Cons to Owning Facebook Stock
Facebook’s Fake News Problem: Perhaps one of the biggest negatives facing FB stock right now is its fake news and the various pieces of hate speech. Facebook never set out to be a media company or distribution firm for it. But it has quickly become one. That creates a whole other set of issues that Zuckerberg will be forced to deal with. And considering just how many fake news stories get shares on Facebook, the problem could be very deep indeed. Fellow InvestorPlace commentator James Brumley estimates that it could cost FB a lot.
Slower Growth and Higher Spending Ahead: While Facebook stock is still growing and it has avenues for future growth, it’s no longer growing like weeds. Or at least it won’t be for a couple of quarters. That’s because it’s taking a breather from its torrid pace of advertising growth. It’s impossible to keep running at 50% growth rates forever. And FB knows this. That’s why on the latest conference call, CFO Dave Wehner noted that there will be a meaningful slowdown in ads.
That slowdown could seriously crimp Facebook stock and have it give back some of its hefty long-term gains. Investors may value FB stock as a “value stock” rather than a growth stock as the slowdown happens.
Metric Mistakes: Facebook stock may not be as good as everyone thinks. That’s because the company is having a hard time gauging how it is truly doing. FB recently uncovered several flawed measurements related to how consumers interact with content — this includes content click through and inflated calculations for the time viewed on video ads.
While Facebook has said that the flawed metrics haven’t influenced billing, it has affected advertisers’ trust. Several have already called for third-party verification and other concessions from the site. In the end, if FB doesn’t get its act together here and fix the issues, it could more serious than initially reported. Advertisers could start flying the coop.
Buy or Sell FB Stock?
While the negatives are a problem — especially the ad metric issues — Facebook’s positives still out weight them. Zuckerberg and his team are pretty brilliant folks. They’ll get over their fake news issues and get growth moving again. Meanwhile, FB continues to churn out massive cash flows and profits.
For investors, in this case, the pros outweigh the cons by a lot. Facebook stock is certainly one to bet on for the long haul.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.
