Can Facebook Stock Make Gains Next Quarter & Beyond?
What factors could drive Facebook’s share price higher?
Facebook stock price (NASDAQ: FB) has declined by over 20% since January following on from a series of scandals and poor growth outlook. Security issues and interest rate hikes are also responsible for Facebook stock‘s woes with widespread selloffs in the tech sector not helping.
Despite the challenges that Facebook stock has faced this year, Facebook is still the largest social network and faces little competition. With this much market share, it is unlikely that Facebook will be going anywhere in upcoming years. It’s clear that FB is a tech mainstay, but what about its stock? Can Facebook shares rebound next year and beyond or will the company’s declines worsen?
Factors That Bring Upside To Facebook Stock Price?
Growth In Global Markets
Despite the Facebook stock price declining, some of the company’s metrics are on the up. Facebook’s daily active users has increased in the Asia-Pacific and Rest of World. These two demographics contribute to 69% of Facebook’s daily active user base.
Facebook’s Advertising Revenue
Facebook and Google have a stronghold over online ads in most major countries around the world. According to eMarketer, Alphabet’s Google and Facebook control almost 60% of the online ads in the U.S market. The grip that Facebook has over the marketing industry means that large brands will continue to purchase ads on the platform. The purchase of ads is one of Facebook’s main monetization methods.
Not to mention, Facebook owns Instagram which is another monolith in the advertisement publishing landscape. KeyBanc’s Andy Hargreaves estimates that Instagram accounts for 15% of Facebook’s ad revenue. This could increase significantly by 30% in the next two years if Instagram carries on its current growth trajectory. The increase in revenue that Facebook could receive from Instagram’s ad business would help increase the Facebook stock price.
Strong Cash Pile and Cash Flow
In the past 12-months Facebook pulled in $17.5 billion in free cash flow. Facebook ended the last fiscal quarter with $41.2 billion in cash and securities. If needed, this cash pile allows for Facebook to be more aggressive on its current share buyback program. The cash pile that Facebook has also allows for acquisitions and other investments.
To increase its revenue Facebook can still grow its video streaming platform further, Watch currently has 400 million monthly active users. WhatsApp is also under Facebook’s belt, which can be utilized to generate more revenue. Monetizing WhatsApp could be a major revenue driver for Facebook, the messaging app boasts 1.5 billion monthly active users.
When compared to other company’s on the NASDAQ, Facebook is seemingly undervalued. Facebook stock price today is around the low $125 mark, trading at only 18 times forward earnings. On average, analysts are forecasting Facebook’s earnings to grow by 18% year over year in the next five years. When carrying out technical analysis, we see that Facebook has a PEG ratio of 1.0, which represents undervaluation.
Comparing Facebook’s PEG ratio of 1.0 to Netflix and Alphabet’s 1.6 ratio, it is clear to see that Facebook is the cheapest FANG stock to invest in when looking at long-term earnings forecasts.
While there are many external factors that impact the Facebook stock price, there are internal challenges that the company faces such as cyber security that keep investors away. Facebook seems to be having no problem with attracting and keeping users, which is promising. Once the company can optimize its monetization strategy amongst its platforms and work on public perception there may be a consensus change on wether Facebook shares are a BUY or not.
Whilst on the topic of social media stocks, can Snapchat attract investors with its new leadership?