If you follow my articles, you know that Facebook Inc (NASDAQ:FB) is my favorite stock. It’s big growth at a big discount. But right now looks like a particularly good time to buy FB stock.
Despite widespread reports of the company extending its dominance of the digital advertising space, FB stock has barely inched up over the past several months. In fact, since the beginning of August, FB stock has under-performed the S&P 500 Index.
FB stock doesn’t under perform the S&P 500 all that often. Over the past five years, FB stock has soared 794% higher to the S&P 500’s 79% gain.
Meanwhile, earnings are just around the corner and long-term revenue tailwinds are just now starting to kick in.
Put it all together, and its easy to see why FB stock is a must-buy here, and now.
Expect A Big Quarter From Facebook
Facebook earnings are due on Nov. 1, and I think the numbers will be quite good.
The FANG stocks are already off to a great start this earnings season. Streaming video giant Netflix, Inc. (NASDAQ:NFLX) reported blowout third-quarter numbers. The story over there remains the same as it has been for the past several quarters. Ever since Netflix doubled-down on original content, subscriber growth has taken off like a rocket ship.
Netflix’s blockbuster numbers add credence to the thesis that the FANG tech giants continue to dominate their respective spaces. This is especially true for Facebook. Reports have rolled in underscoring that: Facebook’s dominance in the digital ad space is growing; and, Instagram’s ad ramp is far from over.
Consequently, it looks likely that FB will report blowout numbers.
But does that mean FB stock will rise? After all, NFLX stock failed to pop following its stellar numbers. Instead, the stock has dragged more than 2% lower.
It’s important to note that, going into the third quarter print, NFLX stock had gained more than 10% since its previous earnings report. Clearly, investors had already priced in good numbers.
With FB stock up 5.6% since its last earnings report against the S&P’s 3.4% gain in the same period, it still seems investors haven’t priced in much since last quarter.
That sets up FB stock to have a nice pop on good quarterly numbers.
Facebook’s Many Long-Term Growth Levers
Longer-term, Facebook stock looks even better.
The thesis on why FB is a long-term investment is pretty simple. Never before have 2 billion people congregated on a single platform. That means more than one out of every four people on Earth is on Facebook. This unparalleled size and reach grants Facebook endless possibilities to grow revenues and profits.They can attack the enterprise social networking market (see Workplace). It’s only a natural step that corporations adopt Facebook as their enterprise social network since there is no learning curve. Everyone is familiar with the Facebook user interface. That is likely why Wal-Mart Stores Inc (NYSE:WMT), the world’s biggest employer, is a Workplace customer.
Facebook can attack the mobile commerce market (see Marketplace). This garage-sale section of Facebook is getting a serious makeover, and is starting to integrate legitimate retailers. Again, it’s only a natural step for retailers to start selling through Marketplace. They all advertise on Facebook. Why not also sell through Marketplace?
Facebook can also attack the digital food ordering market, a rapidly growing space. The new “dinner and movie” night is ordering in food and watching a Netflix original. It makes sense for Facebook to be a middle-man in this market, connecting the world’s largest congregation of consumers to food delivery options.
Facebook can also go after a piece of the streaming video-on-demand market. Facebook’s Watch tab has launched to very little fanfare, but Facebook can turn up the noise on its video efforts whenever it wants to. With 2 billion users, a video on Facebook Watch already has more reach than a video anywhere else. All Facebook needs to do is strategically decide what video content works best. When the company figures that out, Watch will become a big revenue generator.
Bottom Line on FB Stock
Buy FB stock now. Earnings will be really good because Instagram continues to ramp up.
Hold the shares for a long time. Long-term revenue tailwinds from mobile commerce, enterprise social networking, food ordering, and video are just starting to kick in.
As of this writing, Luke Lango was long FB and NFLX.