Facebook Inc (NASDAQ:FB) is setting yet new all-time highs near $165 per share, this time on news that the company will allow the option for paywalled Instant Articles by the end of 2017. Facebook has now more than quintupled over the past five years — a frustrating reminder to early doubters of FB stock who read too much into the company’s immediate post-IPO struggles.
The news today? Facebook will be augmenting its Instant Articles — articles in light-construction format that are easier to read and quicker to load — with a paywall option that will be able to promote digital subscriptions, and block users out after a certain number of reads. Washington Post, The New York Times and other publications currently use similar tactics on their websites.
But more broadly, Facebook — alongside Alphabet Inc (NASDAQ:GOOGL) — is crushing online advertising. They’re the two biggest players in town, and they continue to accelerate as many of their competitors continue to lose ground.
The Facebook Portfolio
Facebook has 2 billion monthly active users on its primary social platform alone. But those looking for growth should be focused on Messenger and Instagram, which boast 1.2 billion and 700 million MAUs, respectively.
The company continues to post robust user growth across all three platforms, thanks in part to its liberal use of brainstorms from social media rival Snap Inc (NYSE:SNAP).
While many pundits worried about teens ditching Instagram for Snap, its demise was wildly overstated. While Snapchat has appeal, Instagram is fine with playing dirty and copying many of Snap’s key features.
Instagram Stories — a key feature of Snapchat — was introduced in August and already has more than 250 million daily users. That’s more than Snapchat’s total user count. And Instagram’s growth is still coming at a breakneck speed, with its past 100 million users signing up faster than the previous 100 million.
Meanwhile, Facebook is looking to finally monetize Messenger’s billion-plus users by displaying ads on the chat-focused app.
Back to the main portal: In addition to helping out publishers with the Instant Articles paywalls, Facebook is expanding its Marketplace e-commerce platform and adding premium video programming to its site. From a competitive standpoint, the latter initiative could cause worry for Alphabet’s YouTube, or perhaps even Netflix, Inc. (NASDAQ:NFLX).
How to Value Facebook
I often call Alphabet my favorite FANG stock, but Facebook is right there with it. Unlike Netflix and Amazon.com, Inc. (NASDAQ:AMZN), I can tangibly value GOOGL and FB. On an earnings basis, FB stock trades at just 27 times forward profits, which isn’t egregious. And while its 26 forward sales multiple is on the eye-popping side, that’s still nowhere near as criminal as Snap’s 40x.
And consider Facebook’s stellar growth profile. The company has beat earnings and revenue estimates for eight straight quarters. Over the past year-and-a-half, FB has grown revenues in excess of 49% — nearly unthinkable for a $460 billion company.
That’s in the past, but the future looks good, too, with analysts projecting 40% top-line growth this year and “just” 30% in 2018. Meanwhile, Wall Street is looking for 26% expansion on the bottom line through 2022.
A five-year outlook might sound suspect, but consider that Facebook was growing revenues by 30%-40% in the quarters leading up to its 50%-plus growth. In other words, management has proven it can ramp up growth over time.
Bottom Line on FB Stock
Facebook might be a great long-term play, but that doesn’t necessarily mean you’re going to win out by entering right this moment.
Facebook stock is cruising well above all of its major moving averages, and it has pushed past trendline resistance as well. In that kind of situation, the sky is typically the limit … though the stock is becoming overbought on a Relative Strength Index basis. While FB can continue moving higher, shares are faithful in that they typically do end up flattening out under this kind of condition.
And while Facebook could correct, this isn’t necessarily an easy shot for short sellers. You might want to consider puts and other bearish option trades for a quick reversal, but the long-term trend is still wildly in Facebook’s favor.
Look for a correction to $150, where FB should find trendline support along with a rising 100-day moving average, provided the 50-day doesn’t provide support first. If I were going to buy FB stock, it would be between $150 and $153.
Any pullback deeper than that should be bought as long as it doesn’t come on company-altering news.