Undervalued Situation – Buy Buy Buy !
Facebook has almost doubled in the past year. This explosive advertising platform has nowhere to go but up. 24 analysts rate this stock a STRONG BUY . Deutsche Bank places a $270 price target on these shares Another winning trade is at hand .
New investors can buy these shares through ” time averaging “. buying a small amount every month , double up as the shares correct and over time you will have a profitable position with little risk .
Facebook is undervalued as the share price has decreased by 9.58% since closing at $214.67 on 7/24/18 while all the key metrics have significantly increased.
Almost a third of the global population uses a Facebook product on a monthly basis with 1.6 billion users daily creating one of the best places for companies to advertise.
Facebook’s quarterly growth YOY from 2017 to 2019 in Q1, Q2, and Q3 has increased at an average of 79.93%.
As Facebook’s revenue, assets and stockholder equity increase FB is setting up to break previous highs.
Facebook’s (FB) share price peaked in the summer of 2018 when it closed at $214.67 on 7/24/18. Since then FB has been battered with bad press and negativity which has affected the stock in a negative way. Investors lost sight of the core business fundamentals and let the noise overshadow their continuous growth. Despite all the noise FB is a cash-generating machine and Q3 of 2019 was no different. I believe shares are ready to explode to the upside as the fourth quarter is always FB’s strongest for revenue. Facebooks balance sheet is the gold standard that all companies should strive to replicate and they continuously smash through key metrics. In Q3 FB continued its trends with growth in Daily Active Users, (DAUs), Monthly Active Users (MAUs), revenue and revenue by user geography. FB is heading into its strongest quarter as companies unleash large portions of their advertising budgets for the holidays. FB’s metrics are significantly better than the summer of 2018 when they reached all-time highs and this company deserves to trade at a premium to their previous highs. My prediction is that shares of FB will trade between $215 – $220 going into earnings and could approach the $240 range after Q4 estimates are exceeded. Forget the noise and look at FB’s numbers and business metrics as they have sequentially grown through the previous negative headlines.
The demand for Facebook’s products is still strong as Daily and Monthly Average Users continue to increase
Facebook once again continued to grow in every geographical segment they operate in. In Q3 FB surpassed the 1.6 billion mark for DAUs which positively affects the bottom line. Their products continue to add users which is simply astonishing when you look at how many people are using their products on a daily basis. When you have such a staggering userbase the difficulty increases to continue the forward momentum, but FB seems to have cracked the code regardless of legislative hearings and negative news stories.
(Source: Steven Fiorillo) (Data Source: Facebook)
(Source: Facebook Q2 Slides)
The global population is 7.74 billion which makes FB’s MAU number incredibly impressive to me. FB has almost reached 2.5 billion MAUs as their recorded number for Q3 was just under 2.45 billion. 31.64% of the global population is using at least one FB product per month. This puts FB in either a class or their own or a class of very few as almost a third of the world’s population utilizes their services.
The fact that FB isn’t regressing in MAUs or DAUs is simply amazing and really sets the tone for the future. 2025 is right around the corner and the global population projection is 8.18 billion people while the projection for 2030 is 8.55 billion. Right now, 31.64% of the global population is using one of FB’s services on a monthly basis. By 2030 there will be an additional 810 million people on the planet for FB to tap into in addition to converting nonusers of their products.
The 2020 election will be a catalyst as other media outlets are steering clear of political ads
In the 2016 Presidential election, President Trump and Hilary Clinton spent $81 million on FB ads. Jack Dorsey CEO of Twitter (TWTR) recently said TWTR will ban political ads. A few weeks after the announcement from Mr. Dorsey Google (GOOGL) announced they would put restrictions on political ad targeting. As of 11/14/19 more than $100 million has been spent on digital ad spending among 2020 Presidential candidates.
The news cycle in 2019 is never-ending and I believe more will be spent on political ads for the 2020 election than ever before. As TWTR and GOOGL place bans and restrictions on political ads, FB is becoming the only place to turn. In the digital space for 2020 Facebook and Instagram will most likely be the top platforms for both Presidential candidates to advertise on. There is a good chance that advertising dollars that were allocated to other online platforms will be redirected to both FB’s platforms.
Facebooks continue’s to grow their revenue at an exciting pace
FB is one of the world’s largest companies with a market cap of $553.55 billion at the close on 12/13/19. While some large organizations struggle to find new growth opportunities FB continues to increase its revenue sequentially YOY. From 2017 through 2019 FB has increased its revenue by impressive percentages. In Q1 of 2018, FB increased its revenue by $3.93 billion or 48.98% YOY and in 2019 Q1 another $3.11 billion or 26% from Q1 of 2018. In Q2 of 2018, FB’s revenue grew by 41.95% YOY from 2017 Q2 increasing by $3.91 billion and in 2019 Q2 another 27.62% from 2018 Q2 adding $3.66 billion in revenue. In Q3 of 2018, FB increased its revenue by 32.91% YOY from Q3 of 2017 adding $3.4 billion and in 2019 Q3 FB’s revenue grew by 28.59% from 2018 Q3 adding $3.93 billion in revenue.
FB must have missed the memo that they are a mega-cap stock because their revenue continues to grow at a rapid pace. Over the past two years, the recorded revenue at the close of Q1, Q2, and Q3 in 2017 has grown at an average rate of 79.93% by the end of Q1, Q2, and Q3 in 2019. FB’s Q1 revenue in 2017 grew from $8.03 billion to $15.08 billion at the end of Q1 2019 which was an increase of 87.71%. The Q2 and Q3 metrics were very similar to Q2 from 2017 to 2019 saw growth at a pace of 81.16% and Q3 over the same period grew at a rate of 70.91%.
I think if 25 CEO’s were polled and asked if they would trade their revenue growth over the same time period for FB’s the majority would say yes in a heartbeat. I selected The Coca-Cola Company (KO) and Johnson & Johnson (JNJ) as they are both mega-cap stocks for a comparison in revenue growth. Using the same methodology KO over the past two years saw its quarterly revenue from Q1. Q2 and Q3 from 2017 to 2019 grow an average of 1.04%. KO’s Q1 revenue in 2019 decreased by $424 million from Q1 in 2017 while Q2 2019 increased by $295 million from Q2 2017 and Q3 2019 increased $429 million from Q3 2017. JNJ over the past two years saw its quarterly revenue from Q1. Q2 and Q3 from 2017 to 2019 grow an average of 10.62%. JNJ Q1 revenue in 2019 increased by 12.69% from Q1 2017 while Q2 2019 saw an increase of 9.15% from Q2 2017 and Q3 2019 came in with an increase of 10.03% over 2017 Q3.
JNJ and KO are two of the most recognizable U.S companies as their products can be found in almost every household across the U.S. Their revenue growth doesn’t hold a candle to FB. FB’s revenue has grown YOY in Q1, Q2, and Q3 by substantial amounts with no clear end in sight. KO and JNJ, on the other hand, haven’t been as fortunate. FB has the secret sauce to grow its business and the trend should continue to hold true into Q4 2019 and throughout 2020.
(Data Source: Seeking Alpha) (Source: Steven Fiorillo)
(Data Source: Seeking Alpha) (Source: Steven Fiorillo)
Facebooks Financials are bulletproof and continue to improve
FB has impeccable financials as the common themes revolve around increasing assets and stockholder equity with long term debt being nonexistent. For the first nine months in 2019, FB’s total assets increased 27.83% from $97.33 billion to $124.42 billion while total stockholder equity increased 11.73% from $84.13 billion to $94 billion. As Facebook continues to grow they pay for that growth organically as they generate an increasing amount of revenue. FB has one of the cleanest balance sheets as long term debt is nonexistent.
FB is in a great position as their net income generated can be allocated to their cash reserves, improving and growing their business or making strategic acquisitions. Personally I would love to see FB start a dividend and returning capital to shareholders as many of the tech giants have done. As FB continues to generate increased revenue they could potentially focus on both growth and returning capital which would be another incentive for long-term investors.
What’s not to love about FB? In Q3 FB surpassed the 1.6 billion mark for DAUs and almost reached 2.5 billion MAUs. It’s YOY quarterly revenue continues to increase by staggering amounts while total assets and shareholder equity continue to increase. With no long-term debt on the books, FB is in a class by itself. I think FB will exceed expectations in Q4 2019 which should propel the share price into the $240 range after earnings. All the key metrics are better now then they were on 7/24/18 when the stock reached all-time highs at $214.67. I feel FB is undervalued and we will see a run that breaks through previous highs in 2020.
Disclosure: I am/we are long FB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Additional disclosure: Disclaimer: I am not an investment advisor or professional. This article is my own personal opinion and is not meant to be a recommendation of the purchase or sale of stock. Investors should conduct their own research before investing to see if the companies discussed in this article fits into their portfolio parameters.
Neither PSN nor its owners, members, officers, directors, partners, consultants, nor anyone involved in the publication of this website, is a registered investment adviser or broker-dealer or associated person with a registered investment adviser or broker-dealer and none of the foregoing make any recommendation that the purchase or sale of securities of any company profiled in the PSN website is suitable or advisable for any person or that an investment or transaction in such securities will be profitable. The information contained in the PSN website is not intended to be, and shall not constitute, an offer to sell nor the solicitation of any offer to buy any security. The information presented in the PSN website is provided for informational purposes only and is not to be treated as advice or a recommendation to make any specific investment. Please consult with an independent investment adviser and qualified investment professional before making an investment decision.