Facebook Inc (NASDAQ:FB) had a good 2016. On the calendar year, FB stock gained about 12% to outperform the S&P 500 and the Nasdaq 100.
But even though FB stock outperformed the broader market, it certainly ended the year on a weak note.
After the last Facebook earnings report in November, the stock softened up thanks in part to disappointing guidance for 2017. Shares are now down about 10% from their October highs even as the stock market has rallied strongly across the same period.
Some are buying Facebook stock on the dip given the strong history of outperformance in this social media giant. Others are fearful that the growth story could be cooling off, and that the future may be more challenging than the past for FB stock.
So what’s the score? To help investors decide, here are three pros and three cons about Facebook stock right now.
Pros of Facebook Stock
Consistent Profit Growth: Unlike smaller rival Twitter Inc (NYSE:TWTR) that has never turned a profit, and unlike older rival Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) that has seen trouble growing the bottom line in recent years, FB stock consistently generates bigger profits each quarter. Consider that when Facebook’s fourth-quarter earnings hit. It should report $4.09 in per-share earnings on the full year — more than triple the $1.29 in EPS for fiscal 2015. And looking forward, 2017 profits are on pace to hit about $5.21 in earnings per share, a 27%-plus increase.
Unrivaled Scale: Facebook has over a billion users. And remarkably, it’s still growing with total daily active users rising from 1.01 billion in Q3 of 2015 to 1.18 billion in Q3 of 2016. It’s simply amazing to consider that a billion people are on this platform EVERY DAY. This gives the company a lot of stability, but also a lot of growth potential for the future since a small gain in profitability per user can mean a big impact on the bottom line of FB stock.
Long-Term Vision: Founder and CEO Mark Zuckerberg created a heck of a social network. However, he also has been ambitious about the future with the acquisition of companies, including Whatsapp and Oculus VR, as a way to keep ahead of long-term tech trends. For instance, in 2016 Zuckerberg shared a 10-year roadmap that includes more video, search and messenger capabilities in the next five years … and everything from virtual reality to artificial intelligence in the years beyond that. FB stock may not be the winner in these races, but it will at least be running them as other stodgy tech firms are left in the dust.
Cons of Facebook Stock
Critical Mass: Of course, we’ve seen this movie before in fast-growing tech stocks that hit a wall. It happened with Microsoft Corporation (NASDAQ:MSFT) and Cisco Systems, Inc. (NASDAQ:CSCO) after the dot-com days were over, and it has happened more recently to Apple Inc. (NASDAQ:AAPL) after iPhone sales lost momentum. With over a billion users, how much larger can Facebook really get? And with so many ads and distractions crammed into the interface as it is, how much more efficient at monetization can FB stock become?
Unrealistic Expectations: Facebook has powered higher thanks to earnings that have met or exceeded expectations consistently for the past three years or so. But if the rate of growth slows and disappoints, it could get rough in a hurry. All growth names in tech go through this, but thus far FB stock has been on a steady march higher. It can only keep this up for so long before sentiment gets ahead of the numbers and sparks a sell-off.
Challenges to the Core: The most urgent threat to Facebook is that its current cash cow it the platform it began with. Not only are there rival social networks like the soon-to-IPO Snapchat that are gaining steam, but there are also continued concerns about user privacy as well as concern over algorithms populating newsfeeds with unwanted or even downright misleading content. Once a consumer tech brand falls out of favor with users, it’s very difficult to win back their trust and interest.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at email@example.com or follow him on Twitter via @JeffReevesIP.