Facebook Doesn’t Have to Be the First to Be the Best

Sometimes in investing, it doesn’t matter which company is first to market with a new product. If you’ve got a big enough company with deep pockets and enormous reach, you can just copy the competition. That’s what Facebook (NASDAQ:FB) does best these days and it’s been a winning formula for Facebook stock.

A person using the Facebook app on a smartphone

Source: Wachiwit / Shutterstock.com

True, Facebook was truly a revolutionary idea when Mark Zuckerberg launched it at Harvard in 2004. Now the company logs more than 2.7 billion monthly average users, making it the biggest social media platform in the world.

And it’s still growing. The company registered a 12% increase in monthly average users from a year ago. That’s a staggering number for a platform well into its second decade and already boasting truly global reach.

Obviously, people aren’t getting tired of Facebook. And it doesn’t seem to matter that Facebook’s newest features are mostly copycats of other social media platforms that are coming up with ideas that excite the market.

Whether it’s Instagram stories, Facebook Rooms or the company’s newest release taking aim at latest rival TikTok, Facebook aims to absolutely smother the competition even when it loses the race to get product to market first.

That’s the Facebook way. And it works.

Facebook Stock at a Glance

As I said, Facebook isn’t slowing down despite being a mature social media company. Earnings for the second quarter were a massive beat, with revenue of $18.69 billion handily topping analysts’ estimates of $17.4 billion.

Revenue was 11% better than a year ago, when the company booked $16.89 billion.

Earnings per share was also a big win for investors, as Facebook recorded $1.80 per share, compared to analysts’ estimates of $1.39. That also was a big improvement on a year-over-year basis from when the company registered EPS of $0.91.

While the company did not provide formal guidance for the third quarter, it did say it expects revenue growth to be about 10% on a year-over-year basis.

For the year Facebook stock is up more than 24%, even after taking a major tumble in September alongside other tech stocks.

Facebook ‘Innovation’ at Work

While Facebook is the biggest social media company on the planet, it’s not the hottest name these days. That title goes to TikTok, the Chinese platform that drew the ire of the Trump administration and prompted Trump to issue an order declaring the app to be a national security threat and banned it from app stores in the U.S.

TikTok’s owner, ByteDance, is currently seeking approval from Beijing to spin off TikTok’s operations in the U.S. into a new entity called TikTok Global, which would see Oracle (NYSE:ORLC) and Walmart (NYSE:WMT) as major investors.

How that all shakes out is yet to be seen. But Zuckerberg & Co. aren’t just sitting back – they’re aiming to take what makes TikTok tick and turn it into a new Facebook feature.

TikTok allows users to make and download short-length videos set to music or other audio. It’s become a big deal for the younger crowd to be sure, and that’s a valuable customer base for any social media company.

While some younger users are abandoning Facebook’s core platform, its Instagram app remains hugely popular with young people. So it makes sense that Facebook is using Instagram to take on TikTok. That’s where Instagram Reels comes in.

Reels is Instagram’s tool that was launched just in early August. Reels allows users to create short videos with audio, effects and other tools and post them on the Instagram platform?

Sound familiar? It should! The company just announced that it is doubling the length of Reels videos from 15 seconds to 30 seconds just to make them even more appealing — and of course, to better compete with TikTok.

This isn’t the first time that Facebook took someone else’s great idea and decided to make it its own. Remember, Facebook actually went out and bought Instagram in 2012 for a cool $1 billion.

And when Snap (NYSE:SNAP) was the hottest name in social media a few years ago, remember how Facebook responded? It suddenly created Instagram Stories as a direct competitor.

Earlier this year, I wrote about the launch of Facebook’s Messenger Rooms as a direct competitor to other video conferencing services that were soaring thanks to the work-from-home culture brought on by the novel coronavirus.

As I said — you don’t have to be first off the block as long as you have a dominant platform and the money to spend. Facebook has both.

The Bottom Line

Other social media companies might be more innovative than Facebook, and really, that’s understandable. After all, Facebook has its hands full these days dealing with privacy issues, extremism and efforts from foreign countries to interfere in U.S. elections.

But Facebook’s global reach is unparalleled among social media companies. It continues its remarkable growth and is a daily part of life for hundreds of millions of people around the world. You don’t get that with other stocks.

Facebook doesn’t have to be first to be the best.

Facebook stock has a “B” grade in my Portfolio Grader right now, where it carries a buy recommendation.

On the date of publication, Louis Navellier had a long position in FB. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.

Article printed from InvestorPlace Media, https://investorplace.com/2020/09/facebook-doesnt-have-to-be-the-first-to-be-the-best/.

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