Legendary investor George Soros loaded up millions of shares of Facebook Inc. (NASDAQ:FB) in the second quarter of 2015. The question now is: should you follow?
According to the SEC filing from Soros Fund Management, George Soros increased his position in the social media giant by 1,988% to 2.59 million shares of Facebook stock, worth around $222.3 million at the end of June. (Source: The Securities and Exchange Commission, last accessed September 14, 2015.)
So, what’s so good about Facebook?
Why the Smart Money is Betting on Facebook Stock
Facebook has a dominant position in the social media business. In the most recent quarter, the company had 1.49 billion monthly active users (MAUs), nearly five times of its competitor Twitter Inc.’s (NYSE:TWTR). Moreover, despite being a behemoth, Facebook is still growing at a decent pace. In the second quarter, Facebook’s MAUs increased 13% year-over-year. (Source: Facebook Inc., last accessed September 14, 2015.)
Any successful business needs to adjust to the trend in its industry. In the internet business, users are switching to mobile devices such as smartphones and tablets. Fortunately, Facebook managed to cater to the shift towards mobile devices. In the second quarter, the company’s mobile MAUs surged 23% year-over-year to 1.31 billion.
Growth of Facebook’s advertising business has been phenomenal. In the second quarter, the company’s advertising revenue grew by 43% year-over-year. A large part of the growth comes from mobile ads. Mobile ad revenue totaled $2.9 billion, reflecting a whopping 74% increase year-over-year and made up 76% of total advertising revenue.
Growth in ad revenue was on a global scale. North America led with 55% ad revenue growth in the quarter, followed by APAC’s 48%, Europe’s 30%, and the rest of the world’s 22%.
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Today’s investors seem to care more about a company’s growth than its current performance. And there are quite a few tech companies carrying high valuations without being profitable. This, however, makes Facebook more unique by having a decent bottom line.
Much of this growth is starting to trickle down to the bottom line. Last quarter, Facebook’s adjusted net income increased from $1.1 billion to $1.4 billion. This translated to adjusted earnings per share (EPS) of $0.50, a 16.3% improvement from the $0.43 in the same quarter last year.
Shares of Facebook stock are trading at $92.08 apiece around noon on Monday September 14th. The price tag is certainly not cheap. Facebook’s price-to-earnings ratio (P/E) is at 93.92, much higher compared to its competitor Google’s 29.31 and the industry’s 33.33. So, other than its advertising business, what could bring further growth to the company?
Chart courtesy of www.StockCharts.com
Well, Facebook’s goal is to “connect everybody in the world.” And it has made decent progress on achieving that goal. In July, the company announced that it had finished construction of Aquila, a full-scale drone that can deliver wireless internet with lasers. Facebook plans to use the drone to provide internet access in remote parts of the world.
The company is also moving into a hot area—virtual reality. The Wall Street Journal reported that Facebook was working on a standalone video app that would support 360 degree videos. The app was still in early stages of development but would work on many platforms including Apple’s iOS and Google’s Android. Note that Facebook’s CEO Mark Zuckerberg has said that virtual reality would be “the obvious next big thing.” Last year, the company acquired virtual reality startup Oculus VR for $2.0 billion. (Source: The Wall Street Journal, last accessed September 14, 2015.)
Billionaire George Soros is Buying Facebook; Should You Buy, Too?
Investors have been quite bullish on the social media giant. Facebook’s stock price surged more than 18% since the beginning of this year. George Soros has made some smart bets in the past. Looking at Facebook right now, I think he might be onto something this time, too.