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3 Reasons Facebook Inc (FB) Stock Still Looks Great

The response to Facebook’s blowout earnings has been muted, but this might be an opportunity to buy FB stock

FB - 3 Reasons Facebook Inc (FB) Stock Still Looks Great

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Facebook Inc (NASDAQ:FB) shares have flatlined since the social media giant reported earnings last week. To me, this feels odd. Facebook reported a fantastic quarter that saw revenues spike 49% to $8.03 billion and profits soar 76% to $3.06 billion. But FB stock holders apparently wanted to see more.

There were nagging issues, admittedly. Facebook management noted that growth is likely to decelerate. And what’s more, the company is facing challenges dealing with the problems of violent and offensive video content.

Besides, Facebook stock has already registered a strong run in 2017, up 31% year-to-date. That follows a broader bull move among large tech operators including Amazon.com, Inc. (NASDAQ:AMZN) and Netflix, Inc. (NASDAQ:NFLX).

So what can we expect out of FB stock from here?

Personally, I think shares are a solid opportunity for investors, for three reasons:

The Growth Story

It’s inevitable that Facebook’s top line won’t continue to grow at a 50% clip every quarter. Facebook’s sheer size is starting to work against the company.

But that doesn’t mean FB will be a laggard.

Facebook’s growth rates should continue to be robust, especially compared to many of its peers. That’s because the company has a proven track record of ginning up its user base. During the latest quarter, daily active users (DAUs) jumped by 18% to 1.28 billion, and monthly active users (MAUs) rose 17% to 1.94 billion. For perspective, the world population is around 7 billion.

The ongoing fear for Facebook is user fatigue, but even this seems off-base. Facebook has a long history of successfully taking on competitive threats, such as Friendster, MySpace and Twitter Inc (NYSE:TWTR), and adding features that keep users engaged.

What’s more, the company appears to have blunted the impact of Snap Inc (NYSE:SNAP). A critical part of this has been leveraging the Instagram platform, whose Stories feature has garnered over 200 million daily active users. Snap, on the other hand, has 158 million.

Protecting The Brand

User-generated content is a tough business. If an online community gets hostile, the user base is likely to fade — and so will the advertisers. That’s basically what happened to MySpace.

Granted, Facebook has been the center of various problems concerning UGC. But the good news is that the company continues to take strong actions anytime it hits a speedbump. During the latest earnings call, CEO Mark Zuckerberg talked about the following:

  • The company is hiring 3,000 people in the Community Operations to review content (this does not include the 4,500 that are already in the department).
  • Facebook is developing new tools and systems to help with monitoring the UGC. It also looks like AI (Artificial Intelligence) is playing a key part of this strategy.
  • FB is making changes to the News Feed to reduce the financial incentives for fake news.

Facebook Messenger

When it comes to FB stock, the Messenger app does not get much attention because it provides minimal monetization.

But that will change, and soon.

During the latest F8 conference, FB management made several presentations on how Messenger is the perfect platform to help local businesses get customers, such as with menus, order processing and so on. This is what Facebook’s vice president David Marcus had to say:

“When you come to think of it, Messenger has become the de facto Yellow Pages without having any phone numbers. We have a shot of becoming the Yellow Pages of messaging too.”

The scale is enormous, at roughly 1.2 billion monthly active users. But FB also has 70 million businesses using Facebook Pages, and more than 5 million are active advertisers.

More importantly, the market potential is staggering. According to the most recent investor presentation from Yelp Inc (NYSE:YELP), there 26 million local business in the U.S. and the spending on advertising is a whopping $140 billion.

Tom Taulli runs the InvestorPlace blog IPO Playbook as well as OptionExercise.com, which provides interactive tools & services for employee stock options of pre/post IPO companies. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/05/3-reasons-facebook-inc-fb-stock-still-looks-great/.

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