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Cash Machine Can Provide Value By TipRanks


© Reuters. Facebook: Cash Machine Can Provide Value

I am bullish on Facebook (NASDAQ:), as its competitive positioning, strong growth momentum, and reasonable share price make it attractive.

Facebook is the world’s largest social media platform, founded in 2004 by Mark Zuckerberg. The company’s mission is to empower people to build online communities and grow their businesses, bringing the world closer. (See FB stock charts on TipRanks)


Facebook stock has been one of the best performers among the five Big Tech companies, including Google (NASDAQ:), Amazon (NASDAQ:), and Apple (NASDAQ:). Its stock rose by 27.5% during 2021 and has seen its market capitalization surpass $1 trillion in the first quarter.

Facebook, with over 10,000,000 active advertisers and a market capitalization of $1 trillion, is the undisputed king in the online advertisement sector. Even though many businesses have cut back their marketing budgets, the company showed remarkable growth throughout the pandemic.

Recent Results

Facebook’s second quarter of 2021 earnings beat analysts’ expectations as earnings per share more than doubled on a year-over-year basis.

The company’s revenue also exceeded expectations, and was up 56% on a year-over-year basis at $29.1 billion. The company’s revenue grew at the fastest pace since 2016, when it was $29.1 billion.

Facebook’s monthly active users were 2.9 billion at the end of the second quarter of 2021, showing an increase of 7% year-over-year. The balance sheet was solid with $64.1 million in marketable securities and cash equivalents.

Facebook announced an increase in advertising revenue for the second quarter 2021. This was due to a 47% rise in average ad price and a 66% jump in delivered ads year-over-year.

Facebook stated that revenue growth will occur in the next few quarters mainly due to an increase of ad prices over the previous year.

In the coming quarters, Facebook expects a slowdown in revenue growth, attributed to Apple’s recent update that allows users to remove themselves from the tracking feature in apps on iOS devices, which Facebook believes will reduce developers’ ability to monetize ads.

Facebook’s earnings momentum is likely to continue in the third and fourth quarters, however, driven by revenue and user growth on its platforms, including WhatsApp and Instagram.

Valuation Metrics

Facebook stock looks quite reasonably priced at the moment. Its forward earnings are only 23.7x while its price to free cash flow forward is 24.4x. Both of these figures represent a considerable discount to the wider stock market.

After rising by 39.9% for 2021, revenue is forecast to increase by 19.2%. Normalized earnings per shares are projected to increase by 13.3% in fiscal 222.

Wall Street’s Take

From Wall Street analysts, Facebook earns a Strong Buy analyst consensus, based on 25 Buy ratings, four Hold ratings, and one Sell rating in the past three months. The upside potential of Facebook is 23.4%, according to the $421.97 average FB price target.

Summary and Conclusions

Facebook is still experiencing very robust growth despite its massive size, and enjoys a stellar balance sheet and world-class moat.

This company has significant flexibility when it comes to creating shareholder value. It also generates free cash flow.

The share price has remained relatively low compared with the wider market and Wall Street continues to be very positive about it.

Disclosure: Samuel Smith didn’t hold any positions in the securities discussed in this article at the time it was published.

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