Facebook Inc: Why FB Stock Has No Challengers

Facebook Stock Is the Only Relevant Social Media StockFacebook Stock Is the Only Relevant Social Media Stock

If you were to invest in the social media space, it would make sense to consider Facebook Inc (NASDAQ:FB), since it’s easily the best of the breed. There really is nothing like FB stock, based on the company’s massive 1.65 billion users and terrific growth.

Even when you think Facebook stock could pause, the company delivers another blowout quarter, driving up FB stock to new record heights.

One of the worst things an investor can do is bet against Facebook Inc co-founder and CEO Mark Zuckerberg. FB stock is at a record high, with a market value of $380.0 billion.

Traders are anticipating another great quarter when Facebook reports on Wednesday.

Facebook Inc has beaten the consensus earnings per share (EPS) estimates in the last three quarters by an average of 20%. This is impressive, given the massive size of Facebook Inc.

The company’s ability to deliver consistent and strong growth is nothing short of spectacular. Coming off of a 59.2% surge in second-quarter revenues, Facebook is predicted to drive third-quarter revenues up 53.7% to $6.92 billion. Earnings are on average to grow to $0.97 per diluted share, well above the $0.57 per diluted share a year earlier.

So impressed are the “sell” side, that EPS estimates for Facebook stock have increased six times for this year during the last 30 days, and another five times for 2017.

Any time you have upward-moving estimates, you know a stock is executing.


Chart courtesy of StockCharts.com

My Bull Case for Facebook Stock

Facebook Inc has managed to monetize its 1.65-billion user base by cross-selling goods and services, which is critical for social media companies. Even more impressive is that Facebook had 1.51 billion monthly active users (MAUs).

The key for FB stock will be the growth rate of these two groups. I would expect some slowing, given the size of its user base, but Facebook Inc could surprise.

Its “Instagram” app attracts over 500 million users, while its “Messenger” is being used by over a billion people each month.

These are staggering numbers, which will only grow as the world becomes more linked, and especially if Facebook Inc can expand deeper into India and other emerging markets. I didn’t mention China, as it will be difficult to break into the market there, given the country’s tough regulations and the presence of domestic rivals such as Weibo Corp (ADR) (NASDAQ:WB), with over 220 million users.

Facebook Inc is aiming to ramp up its artificial intelligence (AI) and virtual reality (VR) abilities in an effort to continue improving user experience.

The Bottom Line on FB Stock

The bottom line is that Facebook Inc gets it, fully understanding what it takes to stay ahead of its rivals.

The company’s valuation is still reasonable, despite the price appreciation in FB stock. Facebook stock trades at 26 times its 2017 EPS, and it has a price/earnings to growth (PEG) ratio of 0.94. This implies that Facebook stock trades at a discount to its projected five-year compound annual growth rate (CAGR) for earnings.

For traders, the weekly options expiring on November 4 are predicting a move of 5.95% in FB stock, which equates roughly to a post-earnings range of $124 to $140.