Facebook (NASDAQ:FB) stock proved its dominance in the last few months when it emerged as the hero of the pandemic saga. While economic disruption was rife, the social media platform showed resilience in the face of volatility with an increase in sales and engagement.
Despite growing concerns over the impact of the corona-economy on businesses across the board, Facebook’s first-quarter results in April blew analyst expectations out of the water. This was followed by Q2 results in July that rivaled these numbers. This earned Facebook stock its title as one of the highest valued stocks on the Nasdaq composite- we recommend you stay long on this investment.
Facebook Stock Gains An Edge With Reels
Amidst concerns over cybersecurity issues on TikTok, there were talks of banning the app in the U.S or a potential acquisition by Facebook. While there was no firm consensus on the future of TikTok, you may have noticed a new button on your Instagram search tab this week.
The short looped videos that TikTok is known for are now available on Instagram as Reels. This doppelganger version has the same look and feel of TikTok minus the controversy that surrounds the app. However, videos on Reels can only last up to 15 seconds versus a minute on TikTok.
Instagram’s goal is to add to the versatility of the platform by providing the user with more choices. It will continue to integrate more features on the app to gain a competitive edge over TikTok. Instagram’s storied history of adding new enhancements like Stories and selfie-filters have been incredibly successful. With a user-base of 1 billion, it is likely that Reels could re-create TikTok’s success.
On the investor front, the roll-out of Reels on Instagram was a major hit. When the feature was announced, Facebook stock soared 6.5% higher and led the price to a new high of $265.28. The stock price is currently trending at $263. In addition to a price hike, Facebook’s founder, Mark Zuckerberg’s net worth surpassed $100 billion making him a new member of the coveted billionaires club.
Impressive Q2 Earnings In The Books
At a time when job losses and business closures were commonplace, tech companies showed their indispensable quality- a factor that was reflective in Facebook’s earnings. The company reported its Q2 results in late July and the numbers were impressive, to say the least.
Facebook’s earnings per share (EPS) stood at $1.80 which was twice as high as its EPS from a year ago. Total revenue was $18.7 billion which was 11% higher in a year-over-year and resulted in an increase in its operating margin from 27% to 32%. This growth was attributable to the increase in the number of daily users on the app which rose by 14%.
According to Facebook’s Chief Operating Officer, Sheryl Sandberg, the company’s revenue dipped in April followed by a quick recovery in May and June. This was mainly driven by increased advertising on the platform and made up 98% of the total revenue. The company expects its double-digit growth in advertising revenue to continue into the next quarter as social distancing remains the norm.
Facebook saw its fair share of controversies this year and although this did not have a substantial impact on the company’s earnings, a few major advertisers paused their campaigns on the platform. Nevertheless, given Facebook’s history of resilience, investors predict the company will continue to put up big advertising revenue numbers in the coming months.
The Bottom Line On Facebook
Facebook’s unstinting rise despite the sharp contractions in the economy is a testament to the power the platform has gained over its loyal following. The lockdown presented a unique opportunity for the company to grow its customer base with new features while attracting new advertisers as the e-commerce industry became the undisputed winner of the pandemic.
With the introduction of Instagram’s version of TikTok (Reels), Facebook’s ascent in the coming months will be swift if it is able to successfully capture TikTok’s ride-or-die community, specifically its stars. Facebook stock is definitely one to watch closely in the coming months as the company leverages its position with short-form video content.
With analyst beating results and a new Instagram feature that play into the interests of a loyal fan-base, Facebook is well-positioned to weather the corona-economy better than most. We recommend you stay long on this stock as the company continues to dominate the social media world.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020. As of this writing, Divya Premkumar did not own any of the aforementioned stocks.