They laughed when Mark Zuckerberg took Facebook Inc (NASDAQ:FB) public. But after the recent run in FB stock, they’re not laughing anymore.
Facebook stock has been on a tear since the company’s initial public offering (IPO). Since 2012, shares have surged more than 200%. Analysts who called the social media giant a “fad” are now choking on their humble pie.
Those skeptics might need another serving. The bullish trend in Facebook stock could be just getting started. Zuckerberg still has a couple of tricks up his sleeve that could send shares soaring to new heights.
Here are three reasons why I’m still bullish on FB stock…
1. Virtual Reality
Investors are always looking for companies that would have the next big thing. Luckily, on that front, Facebook has got it covered.
I’m talking about virtual reality (VR), one of the hottest fields in tech—if not the hottest—today.
If you were at this year’s Consumer Electronics Show (CES) in Las Vegas, you’d see how big of a crowd VR has drawn—you couldn’t walk more than a hundred feet without seeing a VR headset somewhere.
The star of the show in CES’s VR segment was the “Oculus Rift,” a virtual reality headset developed by Oculus VR, which is owned by Facebook. Back in 2014, Facebook’s CEO Mark Zuckerberg made the big decision of buying Oculus for $2.0 billion. The acquisition was a milestone for Facebook because at that time, the company wasn’t even in the hardware business, let alone virtual reality. (Source: “Facebook to Acquire Oculus,” Facebook Inc, March 25, 2014.)
The acquisition is about to bear fruits for Facebook. The “Oculus Rift” is now available for pre-order and has a starting price of $599.00. Moreover, there will likely be many more add-ons to the VR headset. As consumers embrace the VR world, this little device from Oculus could provide a substantial source of revenue for Facebook.
The neat thing about Facebook’s business is that it doesn’t get affected that much by what the global economy is doing. While companies like Apple Inc. (NASDAQ:AAPL) and Amazon.com, Inc. (NASDAQ:AMZN) face risk in its demand due to economic growth slowing down in certain parts of the world, the social network behemoth just keeps gaining users.
The relative immunity of Facebook’s business to the world’s overall economic environment could translate to less uncertainty in the company’s future performance.
And that’s a good thing for investors. In fact, it might be one of the reasons why Facebook stock is doing quite well, while the rest of the FANG stocks have struggled in the first month of 2016.
3. Solid Financials
The social network giant also managed to grow its earnings. In fact, investors just celebrated the company’s massive earnings beat last week.
In the fourth quarter of 2015, Facebook generated $5.84 billion in revenue, smashing Wall Street’s expectation of $5.37 billion. Earnings came in at $0.79 per share, also significantly higher than the $0.75 expected by analysts. (Source: “Facebook Reports Fourth Quarter and Full Year 2015 Results,” Facebook Inc, January 27, 2016.)
Despite being the largest social network in the world, Facebook continued to expand its userbase. By the end of December, the company’s monthly active users (MAUs) have reached 1.59 billion, a 14% increase year-over-year. Mobile MAUs surged 21% year-over-year to 1.44 billion.
The really exciting part is the improvement in Facebook’s monetization. You see, once the userbase gets to a certain point, it might become more difficult to keep the high rate of growth in MAUs. However, if you can make more money off the existing userbase, you can still grow your business.
That’s exactly what Facebook has done. The company’s average revenue per user (ARPU) has increased to $3.73 in the quarter, 32.7% higher compared to its $2.81 ARPU in the year-ago period. Advertising was the main driver: in the fourth quarter of 2015, advertising revenue totaled $5.64 billion, a whopping 57% increase year-over-year. (Source: “Facebook Q4 2015 Results Earnings Slides,” Facebook Inc, January 27, 2016.)
The Bottom Line on FB Stock
Essentially, Facebook is growing its revenue at a faster pace than the growth in its user base. Moreover, this could continue to hold true as the company begins making money from its virtual reality segment. It’s likely that the best is yet to come for the FB stock.