If you’ve been following this site, you’d know I’ve spent quite some time uncovering little-known 5G stocks. And while finding under-the-radar 5G stocks can be an exciting task, I can’t help but notice there’s a mega-cap tech giant that’s also well positioned to benefit from the 5G era: Facebook, Inc. (NASDAQ:FB).
Facebook is by far the largest social medial platform in the world, with billions of people using it on a daily basis. It should also be noted that Facebook, Inc. is not just about the Facebook app. The company has a family of well-known products including “Instagram,” “Messenger,” and “WhatsApp.” And every one of these platforms has a large and growing user base.
Facebook is not going to become a wireless carrier, and—as far as I know—it’s not making a 5G smartphone. However, when more people start using 5G-enabled devices, the faster network speeds offered by 5G can boost the usage of Facebook’s family of apps.
That is, in the 5G era, Facebook has the potential to achieve stronger user engagement, which could, in turn, drive its revenue and profits.
Now, one of the reasons I enjoy digging up under-the-radar tech stocks is that, generally speaking, their counterparts—the most well-known names—have gotten expensive.
FB stock has also enjoyed a strong rally over the past few years. But if you take a look at its chart, you’ll see that Facebook stock has been consolidating since last August.
What’s more is that, at its current share price, Facebook, Inc. has a price-to-earnings (P/E) ratio of 26.5 times.
That makes it the least expensive company among the FAANG stocks—Facebook, Amazon.com, Inc. (NASDAQ:AMZN), Apple Inc (NASDAQ:AAPL), Netflix Inc (NASDAQ:NFLX), and Alphabet Inc (NASDAQ:GOOG)—in terms of P/E ratio.
In fact, the S&P 500 index currently has an average P/E ratio of 39.6 times. (Source: “S&P 500 PE Ratio,” multpl.com, last accessed February 5, 2021.)
So Facebook is not only cheaper than the mega-cap tech giants, but also cheaper than the benchmark index.
Facebook, Inc. (NASDAQ:FB) Stock Chart
Chart courtesy of StockCharts.com
Fourth-Quarter Earnings Report
Of course, a lower valuation can sometimes be an indication of a lack of growth, but that’s not the case at all with Facebook, Inc.
According to the company’s latest earnings report, Facebook had 2.8 billion monthly active users in the fourth quarter of 2020, which represented a 12% increase year-over-year. The platform’s daily active users were 1.8 billion, up 11% from a year earlier. (Source: “Facebook Reports Fourth Quarter and Full Year 2020 Results,” Facebook, Inc., January 27, 2021.)
Factoring in Instagram, Messenger, and WhatsApp, the Facebook family’s monthly active people and daily active people were 3.3 billion and 2.6 billion for the quarter, respectively. Those numbers were up 14% and 15% year-over-year.
What’s more impressive than the growth in the number of users is monetization. In the fourth quarter of 2020, Facebook earned an average revenue of $10.14 per user. That represented a 19% increase year-over-year. (Source: “FB Earnings Presentation Q4 2020,” Facebook, Inc., last accessed February 4, 2021.)
The average revenue per user across the company’s family of platforms came in at $8.62, marking a 16.8% increase from the year-ago period.
Combining an expanding user base and higher revenue per user, Facebook, Inc. managed to generate very strong top-line growth. The company’s fourth-quarter revenue totaled $28.1 billion, up 33% from the $21.1 billion earned a year earlier.
The bottom-line number went up even more. For the quarter, Facebook generated net income of $3.88 per share. That’s up 52% from the $2.56 per share earned in the fourth quarter of 2019.
While the fourth quarter of 2020 was very solid for Facebook—the company beat Wall Street’s revenue and earnings expectations by a wide margin—FB stock actually slipped after the earnings release. The reason likely had to do with the company’s outlook.
In the earnings conference call, Facebook’s chief financial officer, Dave Wehner, said, “We also expect to face more significant ad targeting headwinds in 2021.” (Source: “Facebook, Inc. (FB) Fourth Quarter 2020 Results Conference Call,” Facebook, Inc., January 27, 2021.)
He continued, “This includes the impact of platform changes, notably iOS14, as well as the evolving regulatory landscape. While the timing of the iOS14 changes remains uncertain, we would expect to see an impact beginning late in the first quarter.”
Ultimately, there are some challenges facing Facebook, Inc. But the company is by far the leader in its field—and that field is well positioned to benefit from the secular tailwind brought by 5G adoption.
At its current valuation, Facebook stock simply looks too attractive to pass up for 5G stock investors.