Facebook Stock: Should You Buy, Sell or Hold?
May 26 2021 - 7:12AM
Finscreener.org
Facebook (NASDAQ: FB) is one
of the largest companies in the world. Valued at a market cap of
$900 billion, FB stock is up an impressive 733% since its IPO.
Comparatively,
the S&P 500 has returned 270% in this period.
While past returns don’t matter much for investors, let’s take a
look to see if Facebook stock is a good buy right now.
Facebook impresses with Q1 results
In the first quarter of 2021, Facebook reported sales of $26.2
billion, which was an increase of 48% year over year. Its operating
income rose close to 100% to $11.4 billion while adjusted earnings
were $3.30 per share. Comparatively, Wall Street forecast Facebook
to report sales of $23.7 billion and earnings of $2.37 in Q1.
Facebook is the second-largest digital ad platform in the world
after Alphabet’s (NASDAQ: GOOG)(NASDAQ:
GOOGL)
Google and it continues to benefit from the shift towards online
enterprise ad spending. In the March quarter, ad prices were up 30%
for Facebook and a part of this growth can be attributed to the
COVID-19 pandemic that has acted as a tailwind for companies in
multiple tech verticals.
FB CEO Mark Zuckerberg was optimistic about its Oculus AR/VR
platform and said the business reached an inflection point in terms
of revenue in Q1. Oculus makes up a majority of Facebook’s “other”
category sales. This business reported sales of $732 million in Q1,
an increase of 146% year over year.
While Facebook did not provide any guidance for Q1, it expects
revenue growth to accelerate on a sequential basis.
A social media giant
Facebook is easily the undisputed leader in the social media
vertical. Over 2.7 billion people use one or more Facebook
applications each day that include WhatsApp and Instagram. It has
3.45 billion monthly active users or 44% of the world’s entire
population on its platforms. We can see how Facebook has monetized
its user base driving ad sales significantly higher over time.
Further, around 200 million businesses leverage the Facebook
platform to engage with customers. The shift towards e-commerce in
the last year has accelerated at a rapid clip. While physical
stores closed, online storefronts stayed open and catered to
consumer demand.
Facebook build the Marketplace which is one of the world’s
leading platforms for people to buy and sell products. The company
claimed over a billion people visit Marketplace each month. As it
remains optimistic about growth in e-commerce, Facebook launched
Shops in 2020. There are over a million active shops and more than
250 million monthly visitors on this platform.
During the earnings call, Zuckerberg confirmed, “We recently
updated WhatsApp catalog, so businesses can keep them updated from
their computers and to include whatU+02019s in stock. We launched
carts on WhatsApp last year, and people have used them to send
orders more than 5 million times.”
What next for FB stock?
Wall Street expects Facebook to increase sales by 34.9% to $116
billion in 2021 and by 19% to $138.16 billion in 2022.
Comparatively, its earnings are forecast to increase by 30.3% to
$13.15 in 2021 and by 15% to $15.23 in 2022. This shows us that FB
stock is trading at a forward price to sales multiple of 7.75x and
a price to earnings multiple of 24.2x which is not too steep given
its robust growth forecasts.
Analysts tracking
Facebook stock have a 12-month average price target of $383
which is 21% above its current trading price. Facebook is a company
that is a market leader and its stock is trading at a reasonable
multiple. The e-commerce boom will positively impact FB’s revenue
and earnings in the upcoming decade, making it a solid long-term
bet.
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