The recent selloff in tech stocks, such as Facebook Inc (NASDAQ:FB), which sent the Nasdaq Composite Index down by 2.5%, has now created a buying opportunity in FANG names, including FB stock following the company’s news that it crossed the 2 billion user threshold.
For some context, 2 billion users means the Menlo Park, Calif.-based social media giant has doubled its active user base in less than five years, after passing the 1 billion level in October 2012 shortly after it went public. There’s no denying that this pace of growth is impressive. And while I don’t expect Facebook to again double its user base in the next five years, given the predictable revenue and earnings growth the company has established, FB stock — currently at $148 — can certainly double during that span.
Giving No Ground to SNAP
Under CEO Mark Zuckerberg, Facebook continues to operate on its stated objectives — doing so without caring for what some perceive as the company copying features from Snap Inc (NYSE:SNAP), the parent of upstart Snapchat messaging app. From my vantage point, by building up Instagram, its own photo-sharing app, Facebook is plainly saying it will not cede its social media dominance to SNAP.
Aside from the lack of competition from SNAP, Facebook’s ability to fight off larger rivals, such as Alphabet, Inc.’s (NASDAQ:GOOGL, NASDAQ:GOOGL) Google in the realm of advertising, is only one aspect of what makes FB stock appealing.
Zuckerberg’s ability to anticipate people’s habits is the company’s biggest competitive advantage. Facebook recently modified its mission statement to include more emphasis on its support for more “meaningful” groups focused on bringing local communities together.
Power of Community
On his Facebook page, Zuckerberg pointed out that the company’s new mission is to “give people the power to build community and bring the world closer together.” That new mission is a significant change from the company’s previous pledge, which was “to give people the power to share and make the world more open and connected.” It seems Zuckerberg wants his company to do more than just connect people, which in a CNN interview, the CEO claimed “connecting” wasn’t enough.
“We used to have a sense that if we could just do those things, then that would make a lot of the things in the world better by themselves,” Zuckerberg said. “But now we realize that we need to do more, too. It’s important to give people a voice, to get a diversity of opinions out there, but on top of that, you also need to do this work of building common ground so that way we can all move forward together.”
FB Changing the World
To that end, Facebook Groups, which is now used by a billion people, is the platform Zuckerberg will focus on to deliver the company’s new mission. Groups, which he believes could help people discuss real world issues and solutions, makes FB stock even more compelling, especially as consumers around the globe are spending more time online participating in Facebook’s smaller Group-type networks, such as Nextdoor and Meetup.
This new initiative — combined with the company’s strategic investment in video — will allow Facebook to maintain its stranglehold on digital advertising for years to come. And to say nothing about Instagram, which already has more than 600 million monthly active users and WhatsApp with its more-than-1 billion users.
Bottom Line for FB Stock
All told, while acquiring the next billion users may take a little longer than the last billion, Facebook still has tons of growth levers it can pull in the quarters and years ahead. And with FB stock still priced attractively at just 25 times 2018 estimates, which is five points below its historical average, these shares should reach $170 by the end of the year, delivering an additional 13% returns.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
