A balanced focus on users as well advertisers makes Facebook Inc. an attractive growth play.
More Reasons To Buy Facebook Inc. (FB) Stock
Menlo Park, California-based Facebook (NASDAQ:FB) has had a stellar run in 2017. FB stock price is up by nearly 29% in the year-to-date, doubling the 14% gain in the Nasdaq Composite (INDEX:COMPX) over the same period. However, this month (May) has seen the stock correct marginally, falling by just over 3% to close the last trading session at a price of $148.07 a share. Given the consistent and steady rally which the stock had seen in the year-to-date, a pullback in FB stock price seemed to be on the cards. The bigger question is should investors use this opportunity to buy into the stock of the social media giant? Well, we think yes. And here is why.
Facebook Just Got More Stickier
The all-time legendary investor, Warren Buffett, had recently raised many eyebrows in the investing community by buying shares of Apple (NASDAQ:AAPL), the Cupertino-based tech behemoth. When quizzed as to what attracted him to the iPhone maker, Warren’s answer centered on the fact that Apple has got a tremendously sticky product in the iPhone. We can ask the same question with respect to Facebook as well. Is Facebook a sticky product? Well, according to socialmediatoday.com, Facebook usage accounts for 35 minutes of an average user’s day. In context of the nearly 2B MAUs that the platform now boasts of, that’s a whopping 70B minutes users spend on the social networking platform every single day. By this measure, Facebook is probably one of the most sticky products in the social media space. By comparison, Twitter accounts for just a minute of an average user’s day.
And well, Facebook has been hard at work making the product a more sticky one. That will equate to more minutes of daily usage, which when combined with its massive user base could drive the top line significantly. The company recently launched Facebook stories, which allows users to share stories which are active for 24 hours. A direct copy of Instagram stories, which was lifted from Snap Inc (NYSE:SNAP) owned Snapchat.
More recently, Facebook enhanced its Live video feature by bringing AR camera effects platform to Live and followed that up by bringing social chat features to Live video. While these features might not seem like earth-shattering individually, collectively they have the power to drive a key metric: increased usage, which is also called greater ‘engagement’, in the online advertising jargon.
Facebook Working Hard To Attract Advertisers
While the user story is important to Facebook, that’s just one-half of the story. Equally important in the advertiser story. Why? Well, Facebook is effectively a platform which gets billions of eyeballs every single day. And, eyeballs is something advertisers always seek. In other words, Facebook, with its increasing user base and greater product stickiness becomes so much more valuable to advertisers as well. No wonder the Facebook platform now has over 5M advertisers. More advertisers on the platform also bring along benefits of higher ad rates, driven by greater competition among advertisers. All in all, a greater number of advertisers will help drive the top line growth at Facebook.
Facebook clearly recognizes the value of advertisers for its continued growth. This is reflected by the moves the Menlo Park-based company has taken over the last few months to rectify errors in advertiser metrics/reports and improve the transparency of Facebook as an advertising platform.
A New Revenue Stream For Facebook?
In a more recent move, Facebook has launched Audience direct, which will essentially open up a new revenue stream for the company. With this product, Facebook aims to give third party publishers an ability to target ads based on Facebook’s huge data hoard. With over 2B users visiting the Facebook each month, Facebook surely knows a lot about people online than many other platforms. And, this data is something Facebook’s Audience direct platform will leverage to improve video ad targeting on partner publisher platforms.
To sum up, Facebook’s constant focus on improving user engagement on the platform and attracting a greater number of advertisers to the platform will help sustain the breakneck pace of growth. The Audience network will potentially open up newer revenue streams for the social networking giant, which could hold multi-year growth implications. We believe Facebook stock is a good play on the social media/online advertising space. Trading at a forward valuation of 24.8x FY 2018 earnings, FB stock is an attractive buy considering that Wall Street expects the company to report growth in excess of 25% over the next 5 years. Hence, long-term investors should look to buy into any meaningful dips in FB stock price.
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