Facebook (NASDAQ: FB), the king of all social media, is a household name across the globe. But, recent doubts have grown regarding the sustainability of its ad revenue growth. However, this company dominates the social media industry and it is a force for change. So let’s take a look at some of the main reasons why Facebook is the one social media stock that I am buying right now.
A look at Facebook’s financials
We all know Facebook is a huge money-making machine and its latest earnings reiterated that fact. Its net income was $10.4 billion for Q2 on total revenue of $29 billion. Its earnings per share came in at $3.61. Advertising was, as usual, the main driver of its revenue, coming in at $28.5 billion, up 56% year-over-year (YoY). Its advertising segment has built up huge momentum over the past year and regularly beats market estimates.
As for its stock price, the company is up 18% in the last six months and up 27% year-to-date (YTD). However, since highs of $382.18 on September 7, its stock has dipped 10%.
What I like about Facebook
This company is a powerhouse of success. Despite all the negative press that it receives as a company, the fact that Facebook is still so popular is something for any doubtful investor to think about. This can be attributed to its adaptability as well as its ability to create change in the social media industry.
In recent news, the social media giant has declared that it is going to buy $100 million worth of outstanding invoices from small businesses that are owned by women and minorities. By doing this, Facebook is helping small businesses get paid for their services, rather than wait weeks to be paid by their own clients. This program will help Facebook build a strong loyalty base and foster working relationships with these small businesses, of whom, many rely on Facebook to place their ads.
Facebook has been warning investors for some time that new regulations for advertising, particularly with the new iOS updates, will impact its business. However, it has been running tests to try and combat any fallout from these new security updates. For example, one test would integrate directly under a news feed post to direct customers to other businesses and topics. Furthermore, it would allow the business to add their WhatsApp buttons to their Instagram profiles, whilst creating ads that direct to the necessary contact spaces. If these tests can ameliorate the fallout that has been happening since the iOS updates, then Facebook will be able to continue its trend of beating revenue expectations.
Facebook is also looking to monetize other areas of its business, with its inclusion of a ‘metaverse’ meaning heightened AR and VR tech services. The company could be on its way to introducing a Snapchat-esque feature for its digital marketplace. It also continues to progress in its efforts to monetize its ‘reels’, whilst pushing forward with plans to give users the ability to create their own short-form videos on the Facebook app. Previously, this had only been possible on Instagram.
Risks to Facebook’s share price
Facebook’s earnings reports for Q3 and Q4 will likely see less impressive growth on a YoY basis. This is due to the fact that the second half of 2020 was a good period for growth in comparison to the first half of the same year. This, coupled with the headwind in targeted ad revenue that is stemming from the change in iOS platform regulations, will have a noticeable impact on the next two earnings reports at the very least.
In the long term, as Facebook attempts to build up its AR and VR metaverse services, it will have to face regulatory challenges, including antitrust probes in both the U.S. and Europe. As regulatory bodies attempt to curb Facebook’s monopolization of multiple sectors, the company will continue to face increased scrutiny as it grows.
Facebook’s growth potential
As mentioned earlier, Facebook is a powerhouse that not only adapts well to change but can also be a catalyst for change. Despite the plethora of moral qualms an investor might have regarding this stock, there is no denying that Facebook is a company that will keep on succeeding and building its social media empire for decades to come.
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Financial Writer at MyWallSt
Poppy’s favorite stock is Nvidia as she loves innovation and this stock has bags of it. Nvidia invented the GPU in 1999 and even today its immersive graphics give life to the gaming world. Poppy is also inspired by Nvidia’s ability to imagine and create positive change for the world, with its AI technology fuelling new developments in the automotive industry, the medical industry, as well as powering data centers around the world.