Fresh off its 52-week high, Facebook, Inc. (NASDAQ:FB) continues to reward its shareholders. CEO Mark Zuckerberg’s pledge to fix up the social networking site is giving Facebook stock investors more confidence. Even though the site is hardly broken, tinkering with things that do not work now, instead of never, will keep users happy, attract more advertisers and keep Facebook stock relevant for years to come.
Zuckerberg wrote that Facebook has a lot of work to do. From preventing users from disseminating hate speech to addressing criticism that the site is a waste of time, Facebook is preemptively preventing the small issues from becoming bigger ones down the road.
The company’s potential failure to enforce its policies and prevent misuse of its tools could damage its reputation and drive users towards other platforms, like Twitter, Inc. (NYSE:TWTR) or Snap Inc. (NYSE:SNAP). So far, the competitors — if you can call them that — have not yet taken many Facebook users.
Thanks to creating competing, but similar, offerings on Instagram, the exodus of millennials from Facebook and Facebook Instant Messenger to Snapchat did not happen. To the site’s credit, usage, as measured by time spent and new sign-ups, rose on Instagram. So, when Facebook reports quarterly earnings in a few weeks (Feb. 18), markets may reasonably expect a decisive earnings and revenue beat for the quarter.
Strong retail sales from companies like J. C. Penney Company, Inc. (NYSE:JCP) suggest that advertising revenue for clients in this sector rose. The seasonal strength, led by the holidays and Black Friday, benefited Facebook, as advertising firms allocated much of their budget to Facebook advertising.
Facebook has not said much about the demand for its headset, Oculus. Unfortunately, chances are good that the company did not meet its own expectations for sales. It cut prices of the headset to $379 on Black Friday. HTC, which make the competing Vive headset, claimed its product outsold Oculus by a 2-to-1 margin worldwide.
Given the limited number of games and awkwardness of using a VR headset, Oculus could lose to companies that bet on AR (augmented reality) instead. Apple Inc. (NASDAQ:AAPL) updated all of its operating systems to include future AR support. The company has excess cash it may use to advertise AR-supported games.
In the video content space, Facebook introduced Watch to offer its users yet another means of consuming data. Though the initiative does not include original content, users may enjoy videos from the site instead of relying on YouTube for them. If the original content is fresh and engaging, users will spend even more time on the site, while cutting down or eliminating their reliance on Youtube.
Of the eight models built on finbox.io, the average fair price on Facebook stock is around $185.
Wall Street is more optimistic, with analysts having an average price target of $209 a share. The differences are due to how investors estimate future growth. In past quarterly earnings calls, Facebook warned that it would raise its spending on R&D, while revenue per user risked saturation simply because of the limited real estate space for the Facebook site on a mobile app or desktop. But if the company raised its advertising fees, that would offset the naturally slowing growth in advertising revenue.
Facebook Watch is another promising area. It could keep users online even longer, raising the value of the user to advertisers and adding to the company’s quarterly revenue growth.
Final Word on Facebook Stock
Facebook will probably exceed analyst estimates again but until it reports results, the stock should hold its highs before finding new ones this year.
As of this writing, Chris Lau did not hold a position in any of the aforementioned securities.