This article has every chance to make it to the most popular reads on one of the biggest social media platforms to date aka Facebook. And this is the company we are going to talk about today.
This social media network managed to bring people together based on their interests, through closed groups, news resources or simply opinions voiced by certain people, while being able to not scare away and overwhelm the users with advertising which is a major portion of the company’s profits.
I still remember how I used to avoid and resist getting registered on any other social networking platform, such as VKontakte and Odnoklassniki. However, having Skype or other messengers was clearly not enough, and Facebook quickly figured out what people needed.
By the way, VKontakte turned out to be a pretty good social media network but it was mostly popular among Russian-speaking users.
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1. Facebook: emergence and evolution history
2. Fundamental analysis of Facebook
3. Technical analysis of Facebook
Today, there is probably not a soul who has not heard about Mark Zuckerberg who, according to official data, created the biggest social media back in 2004.
However, the actual person behind the company and how it was incorporated remain unknown to this day. Was it the CIA project, and did Mark Zuckerberg simply unveiled it? Or does the idea belong to the Winklevoss brothers who tried to prove their involvement with it? All of this will be shrouded in mystery, and the chances of ever learning the actual truth are rather slim.
And do we even need to know it, really? No matter who is at the helm of the company, Facebook has been running without a hitch so far, while winning new users daily. By the way, the current number of Facebook users is 2 billion.
Facebook is written in C++, PHP (HHVM). Aside from standard features like sharing photos, information about yourself and wall posts, in 2007, Facebook added apps (games and music-sharing tools), thus generating additional profit and attracting new users.
In April 2016, Facebook unveiled another go-to live streaming service, Facebook Live. Given that Google has removed its standard live streaming tools, Facebook innovation came just in time.
Facebook users can like, write comments and rate brand pages, all of which is a powerful tool for promoting companies. Besides regular like button, in 2016 users got their hands on additional features, enabling them to react to posts with emojis such as Heart, Laugh, Angry and Sad.
Obviously, the whole success story of Facebook was not without the “glitches” given how much personal data (from hobbies to acquaintance network and place of residence) the social network has on each user. When coupled with Google services, you can find out almost everything about a person.
Basically, you either live without a computer in a hut cut off from the world, or the world knows everything about you. There is no third option. However, there is no point in hiding when you have nothing to hide. Being bombarded by advertising is not such a big deal either if you know how to filter it off. The network is primarily focusing on your interests thus making relevant add suggestions.
Google operates on a similar principle. All it takes is to google sneakers or a smartphone, and you’ll be seeing the banners with relevant ads all over the place. You can try using the AdBlockPlus browser extension, and a number of websites will be filtered off immediately or they will start working incorrectly. I encountered the same thing several times on Finviz, so I had to add it to the exceptions list.
Personal data in particular was at the heart of the conflict that involved Facebook. Deliberately or because of the security flaws that led to a breach, private information of nearly 50 million users got exposed, with Mark Zuckerberg having to make public apologies following the incident.
Just like AMZN, GOOG or TWTR, the company does not feel compelled to pay dividends as if saying, “we know better what to do with your profit; if you want it, grow with us.” Facebook capitalization totals $596 billion, with the number of employees reaching up to 44,942.
Profitability indicators are pretty solid as well:
The company is not overindebted like many other popular corporations which we won’t point our finger at, for there is a Debt/Eq indicator for these purposes. Revenues are growing year in and year out by leaps and bounds - from $17.93 billion in 2015 to $70.7 billion in 2019. Net income went up from $3.67 billion to $18.49 billion over the same time period.
With an EPS of $6.48 and a current price of $212 P/E, we have 32 which is already a pretty bold figure. There is a good chance that similar growth rates of the company's profits are already included in the expected value. To do this, we have to analyze the latest quarterly reports and whether the company would be able to stick with the predetermined course.
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Based on the quarterly reports, we can see that there was a major drop to 91 cents per share based on the July publication in 2019. Then the reports got improved, with the price returning to the regular range of $2.10–2.5. The expected April figure was marked by slight decrease, amounting to $1.93, so I would still take the average figure - albeit optimistic one - of around $2.20. That way, the expected value for a year will be about $8.8. With the current price being 212 P/E figure will be 24. That’s better, but the indicator is still way too high.
In order to justify the current stock price, the company has to generate at least $3.5 profit per share which is doable, but most likely not in the foreseeable future or even in the next year or two.
All in all, the far-fetched optimism reaches much farther than the possible market correction. Although this is obviously not AMZN or TSLA, where the price increase and real profit expectations are astronomical and clearly originate from the utopian fantasy world.
From a technical standpoint, the instrument was unable to consolidate at the highs of 2017, with a false breakout of 218.48. In 2018, the price was close to the fair value, stopping at 127.5, although P/E in that profit was around 23.
If we factor in a similar trend based on the expected reports, speculatively the price will be at around 200. If, however, a deeper correction starts, we should pay attention to 175, the price, from which the latest growth momentum followed.
In case of 175 P/E is already 19. It’s not perfect, but it’s still better for starting to accumulate position partially. If we stick with classical scenario, we can expect a powerful correction, as it was back in 2018. Then, the area of 120 will have really great potential with already clear formed profit flows which may fluctuate from $1.5 to $2.5, but the regained market optimism will quickly pick up the first signs of stable reports.
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Author: Victor Makeev
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