3 Charts Show Facebook Stock Could Be the Best Tech Stock in 2017
Facebook Stock Is Poised for Triple-Digit Gains
Figuratively speaking, the phrase “recession-proof” has sedative properties. Add it next to the major money matters of your life (job or investments) and you may sleep soundly at night. The only hitch, however, is that recession-proof tech stocks are elusive. And yet, here I am, presenting to you probably the best tech stock that can stand the test of economic downturns: Facebook Inc (NASDAQ:FB).
Granted, you’re already familiar with the company and have probably read over two dozen different analyst pitches on FB stock. This time around I want you to look at this company from a different angle.
You see, stocks that can survive through an economy’s downturn, like grocery or healthcare stocks, are found in the more traditional investment sectors. The technology sector is not really known for sustaining recessionary pressures; quite the opposite, actually.
Just think about it for a minute. If the economy is dying, businesses are shutting down, and people are getting laid off, who’s going to jump on the next “iPhone” or, for that matter, any new computer chip, software, or gadget? People cut down on luxuries, limit their online purchases, and terminate subscriptions.
In other words, nearly every hot tech stock you can think of—Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), Netflix, Inc. (NASDAQ:NFLX), Tesla Inc (NASDAQ:TSLA), International Business Machines Corp. (NYSE:IBM), etc.—takes a hit.
But Facebook stock survives! Why? Because of its peculiar business model.
Allow me to explain.
Have you ever been on the Golden Gate Bridge? This stunning structure is the only link between San Francisco and Marin County. Anyone crossing from one side to the other must pay a toll for using it.
That, my friends, is also Facebook’s business model.
Facebook is analogous to the toll bridge that connects more than 50 million businesses with nearly two billion people on the planet. Of these businesses, a staggering five million are active advertisers on Facebook. This means that Facebook has become their channel to reach out to potential customers. In turn, Facebook charges them a fee, a toll.
So, as long as these businesses exist, they will advertise. And expect them to advertise more when the business is not doing well. In other words, when the economy is slowing, businesses will have more reason to advertise. So, Facebook holds ground through any upheavals, making Facebook stock probably the best among the rare recession-proof tech stocks.
Why Facebook Could Be the Best Tech Stock in 2017
You see, prior to the Internet era, local newspapers did exactly what Facebook is doing. They were the toll bridges that connected the population of an area with local businesses via classified ads. Popular papers made solid money off this advertising model.
This is why, back in the day, billionaire investor Warren Buffett funneled his money into dozens of local newspapers across the country. After all, there was a ton of money to make off of these toll bridges. But, with the dawn of the Internet, the advertising industry got reshaped or, so to say, digitized. Today, Facebook and Google are the top players in the game.
Just take a look at their market shares in the chart below. Together, they control half of the world’s digital advertising business.
(Data Source: TechCrunch)
It’s hard to believe that Facebook is the same company whose sheer survival was in question for lack of monetization only five years ago. Fast forward to today, and Facebook is now the world’s second-biggest digital advertiser, right behind Google—owned by Alphabet Inc (NASDAQ:GOOG).
In the last three months alone, this toll bridge collected a staggering $7.85 billion in toll (read: advertising) fees. This, by the way, is a 51% jump from the same quarter a year ago. So, its core business is growing at a stunning double-digit rate that is a rarity in the non-digital advertising world.
Also, it’s not like Facebook makes all of its money here at home. It has its “toll bridges” set up across the globe. Nearly half of its advertising revenue is made outside of North America. So, if businesses go offline in one part of the world, Facebook stays online elsewhere, keeping its business going.
The below chart shows Facebook’s advertising revenue broken down by geography.
(Source: “Facebook Q1 2017 Earnings,” Facebook Inc, May 3, 2017.)
Anyone can see that Facebook is one of the best tech stocks to own through the ups and downs of markets.
Now the only concern that Facebook can ever face is that it has to ensure that, not only does it keep adding more users to its platform, these users are retained. Otherwise, it becomes the next MySpace.
Rest assured, that concern is already being addressed, both effectively and timely.
For starters, user growth is right on track, with the next big milestone of two billion monthly active users to be achieved in this quarter. As for user retention, Facebook is leaving no stones unturned, even if that means copying and cloning its rivals.
If you don’t create the thing that kills Facebook, someone else will.”
This is the advice that Facebook CEO Mark Zuckerberg gives to all new Facebook employees, while himself putting those words to action. Just look at how Facebook replicated Snapchat, which is owned by Snap Inc (NYSE:SNAP). Every single Facebook app—”Facebook,” “Instagram,” and “WhatsApp”—now touts Snapchat-like features.
Lucky for Facebook, it already has a gargantuan user base. The company’s “Instagram Stories” feature has garnered more of a following than Snapchat has. Just look at Instagram alone. The number of daily Instagram Stories users has crossed the 200-million mark. That’s actually more than for Snapchat!
Now, take a glimpse of Facebook’s current active user base in the below chart and I promise that Facebook stock will sweep you off your feet.
In a world of seven billion people, nearly two billion are on Facebook! Yes, that’s how big Facebook’s monthly active user base is, and that number is ever increasing. So, adding and retaining users may not be a problem for Facebook if the company stays on the right course.
(Source: Ibid.)
Should You Invest in Facebook Stock?
I don’t see a better way to put it other than I already have. Do not let this stock slip under your radar. FB stock deserves to go on your watch list, if it isn’t already there. The stock price has jumped 300% since its initial public offering (IPO).
My take is that FB stock is just warming up, and it has more than enough room to double in price. Yes, I’m calling for a triple-digit gain!
How can I say this? Three words: “Aquila, “Jarvis,” and “Oculus.” Pushing Facebook’s core business of advertising on the back burner for now, let’s focus on these three fancy monikers for a minute.
You see, Zuckerberg is busy getting his hands dirty in three of the most promising next-generation technologies at his company’s Menlo Park headquarters.
First up is Aquila, a solar-powered Internet-beaming drone manufactured by Facebook with an aim to bring Internet to remote areas of the world. This venture with charitable undertones is anything but. Let me explain why.
There’s an old saying, “if Muhammad won’t go to the mountain, the mountain must go to Muhammad.”
Now answer this: what happens once everyone with Internet access has already joined the Facebook platform? Well, then Zuckerberg takes the mountain to Muhammad. Basically, Facebook goes to those who can’t access the Internet, flies Internet-beaming drones over them, and gets them to sign up to Facebook. As ridiculous as it may sound, that’s exactly what the plan appears to be.
In short, Facebook’s ultimate target is not the three billion already-connected population. The real target is the whole seven-billion-person world population. Facebook has already test-flown a prototype of Aquila, and is on track to materialize this technology.
Then there’s Facebook’s great wager on artificial intelligence (AI) and deep machine learning, with Jarvis. It is an AI assistant like Amazon’s “Alexa,” Microsoft’s “Cortana,” and Google’s “Assistant.”
Jarvis is being perfected into a technology that can be deployed to all of Facebook’s products to eventually infiltrate our lives. It may sound scary at first, but Google and Microsoft are already doing it.
Zuckerberg has a Jarvis prototype up and running at his house that does everything from play music, toast bread, and recognize faces at the door when guests arrive.
But here’s the best part. Not only can it become a stand-alone product for Facebook (like Alexa is for Amazon), Jarvis can complement Facebook’s social media apps. With capabilities of speech and facial recognition—and an ability to perform basic tasks like finding music and hailing rides—Jarvis stands to become the biggest attraction to advertisers on Facebook’s platform.
Finally, we have Facebook’s bet on virtual reality (VR) with Oculus, a headgear that takes the wearer into a parallel universe of science fiction. But this VR concoction has more utility than being merely a fancy device for gaming enthusiasts.
Oculus is finding use in the healthcare sector (immersive surgeries and post-traumatic stress disorder (PTSD) treatments), automotive manufacturing (virtual designing and modelling), education (immersive learning), space, and robotics, to name a few. This little gadget is touted to make up as much as 10% of Facebook’s revenue in the years to come.
All in all, Facebook has a lot going on as it maintains its lead in the race to digital supremacy over our social lives. This is why it appears to be the best tech stock in 2017 that can weather recessions better than most technology stocks.
