Facebook Inc (FB) Stock Price Will Continue Outperforming Rivals

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Facebook Inc (NASDAQ:FB) can do no wrong. It delivered a 13% return in the third quarter, a much better performance than its peers who managed returns between 5% and -18%. When it comes to social media stocks it’s clear which stock investors should own.

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The big question is whether FB stock price can continue to move higher despite the ongoing Russian ad probe that’s forced Facebook to hire 1,000 additional employees to review ads placed on its social media platforms.

I’d say it’s better than 50% given S&P 500 tech stocks, in general, are enjoying a fair bit of momentum heading into the final quarter of the year, up 26% year to date through Sept. 29; Facebook stock’s doing even better up 47% in the same period.

Those Pesky Russians

It seems nothing can stop the FB stock price from moving higher except perhaps another shoe dropping in the Russia scandal. While I don’t believe there’s anything else left to surface that investors don’t already know, life often takes funny turns, so expect the unexpected.

That said, I recently recommended new do-it-yourself investors buy FB stock, one of seven choices including an ETF, that I believe will outperform in the years to come.

“Late last year, I suggested that Facebook stock should be at the top of any investors watchlist but did caution that its investment returns were slowing. Well, Mark Zuckerberg must be reading my stuff, because Facebook stock’s bounced back in a big way in 2017, up 48.6% year to date through September 14,” I wrote addressing those same DIY investors. “As crazy as my idea was for Facebook to start paying a dividend, if it continues to keep growing revenues and profits at the pace it currently is, it will have $20 billion in free cash flow within the next 2-3 years.”

That’s almost $7 per share in cash it doesn’t need to run its business or about half the stock price of Snap Inc (NYSE:SNAP). I know which one I’d rather own.

Forget Russia and Focus on the FB Stock Price Positives

Last November I pointed to Facebook Workplace as an example of a new product the company was using to help other businesses improve the flow of information. Back then it was brand new. Now that it’s been in the public eye for almost year, InvestorPlace’s Luke Lango recently endorsed the enterprise product suggesting that Wal-Mart Stores Inc (NYSE:WMT) and Starbucks Corporation (NASDAQ:SBUX) as clients make Facebook Workplace a whole different ballgame.

Lango makes a bunch of other arguments why Facebook Workplace is a serious competitor to Slack in the enterprise social networking arena, but his best has to do with the growth potential of this product.

“Workplace is substantially cheaper than its competitors. Slack charges $6.67 per month per active user for its Standard plan, and $12.50 per month per user for its Plus plan. Workplace only costs $3 a month for each of the first 1,000 users. For the next 9,000, that drops to $2 each per month. After that, it’s only $1 per month,” wrote Lango September 28. “At $1-$3 a month (or $12-$36 per year), Workplace could turn into a material revenue stream for Facebook. It’s also subscription revenue, so it counts as annually recurring revenue and lends itself to predictable profits.”

Ya think?

Slack has six million daily users. Facebook doesn’t reveal Workplace’s daily users, but it’s safe to assume it’s nowhere near Slack’s. However, a Seeking Alpha article from last October when Workplace launched put its potential at 60 million users generating $2 billion in recurring revenue.

How hard would it be to get to 60 million?

Well, let’s suppose that it converts 10% of every client’s total number of employees. It would have to bring in clients whose workforce numbers 600 million or more. McKinsey & Co. put out a report in 2012 projecting the global labor force at 3.5 billion people in 2030.

So, while it’s easily within reach for a company like Facebook who already has two billion active users, I’m more inclined to believe that Facebook will convert a much higher rate of employees actively using Workplace beyond the 10%.

Either way, this is an income stream that hasn’t even shown up on the radar yet.

Bottom Line on FB Stock Price 

A company as big as Facebook is going to make mistakes from time to time; some of them will be big ones.

But if you’re asking me if there’s anything that’s standing in the way of a higher stock price than its rivals, the only thing that I can think of is a massive correction in the markets.

Personally, I believe a correction could happen in 2018. However, if it doesn’t, there’s almost no way FB stock isn’t higher than it is today. It’s got too many levers to pull on as my colleague likes to say to keep it down very long. 

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.


Article printed from InvestorPlace Media, https://investorplace.com/2017/10/fb-stock-price-outperforming-rivals/.

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