Concerns about so-called “fake news” won’t derail the real profits social media giant Facebook Inc (NASDAQ:FB) will generate in 2017 and beyond. And this makes FB stock one to bet on before the company’s earnings are released later this month. Combined with accelerating ad-revenue growth, the company’s $6 billion buyback and its mobile assets, Facebook stock should reach $150 in the next 12 to 18 months.
Aside from fake news, the emergence and popularity of Snapchat has scared off some FB investors as seen with the near-3% decline Facebook stock suffered at the end of 2016.
Still, with fast-growing assets, such as Instagram and Messenger, which will help drive growth in the quarters ahead, the Menlo Park, California-based company continues to be a dominant force in the realm of advertising.
Facebook Stock Is Still Standing Strong
What’s more, FB has perfected mobile, which gives it a distinct advantage over Twitter Inc (NYSE:TWTR) and even Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL). For this reason, Facebook is expected reach $30 billion in mobile ad revenue and $38 billion in 2018, according to research firm eMarketer. The firm also indicates that mobile advertising comprises roughly 50% of the digital spending in the U.S. As such, FB stock should make up a bigger share of your portfolio.
Notably, while Facebook did spook investors when it warned about higher capital expenses in 2017, this came on the back of strong third-quarter results. In this quarter, it reached $6.8 billion in advertising revenue (a 59% increase year-over-year).
In other words, FB’s ad revenue is accelerating, not declining as investors feared. And this makes it tough to bet against Facebook stock or doubt any investment the company makes to enhance the platform.
Likewise, even assuming Facebook does suffer decelerating ad growth, the company should be able to offset that weakness with a combination of higher user growth, time spent, live video, video ads, better ad targeting and higher revenues from Instagram and Messenger. Plus, we haven’t even mentioned the growth possibilities with the Oculus VR/AR headset.
Bottom Line for FB Stock
FB stock is currently trading around $127, down about 5% from its 52-week high of $133.50. The company will report fourth quarter and full-year 2016 earnings at the end of this month. For the quarter that ended December, Wall Street expects $1.30 in earnings per share on revenue of $8.49 billion, translating to year-over-year growth of 64% and 45%, respectively. Fiscal 2017 estimates calls for $5.18 per share, which prices Facebook stock at a forward price-to-earnings ratio of just 22.
While that P/E is still four points above the S&P 500 Index, it calls for year-over-year earnings-per-share growth of almost 30%. That rate of growth deserves a higher multiple of around 28, which puts FB stock right around $150 per share. Good luck finding another tech stock with Facebook’s market cap that can deliver this combination of growth and value.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.