Facebook is now a popular social media platform all over the world. Aside from that, Facebook, Inc. (NASDAQ: FB) is now one of the biggest companies with a solid and smooth rise of its shares after its IPO. Since then, it has gained constant popularity in the stock market. In this guide, you will gain knowledge on what it takes to invest in Facebook stock and whether it’s a good idea.
Overview: The History of the Facebook Company
Most people only know that Mark Zuckerberg developed Facebook, but the truth is he wasn't alone. Facebook was founded by Mark Zuckerberg together with Eduardo Saverin, Chris Hughes, Andrew McCollum, and Dustin Moskovitz in their dorm at Harvard University back in 2004.
The team first developed Facebook for Harvard students only. But then, after some time, it was expanded into more areas until in 2006, the website was open to anyone as long as they have a valid email address and are at least 13 years old. And in 2012, Facebook raised about $15 billion in an Initial Public Offering (IPO), which valued Facebook as a company of about $100 billion. Three years only and it has reached more than a hundred million users, and Facebook now has more than 2 billion active users.
Facebook, Inc. develops products that allow users to connect and share with the use only of gadgets such as tablets, mobile devices, and computers. Aside from the main social media network, Facebook, the company also developed and launched Instagram, Oculus, Messenger, and WhatsApp.
Why Invest in Facebook Stock?
There are many reasons why investing in Facebook stock is a good thing. Some of the reasons fall over a few aspects such as:
- Active users
- Sales growth
- Profitability and pricing power
- Stock valuation and performance
Active Users
Facebook has over 210 million active users just in the US and in Canada, and according to the census, the age of the users is mostly above 18. Even if the US and Canadian users are the smallest percent of the total users of the social media company, each user still generates excellent revenue. Additionally, even with at most 10% of the total users, they generate revenue that’s three times more than the revenue of Europe. Overall, the monthly active users of the platform increased up to 2.8 billion last year.
Sales Growth
Facebook’s revenue reached up to $86 billion in 2020 and increased in their net profit, equal to almost $29 billion. The majority of the revenue of Facebook is from the ads on its platform. During the previous months of the year, the company's advertising sales reached up to $25.4 billion and a great $732 million from streams on the platform, which involve the Oculus VR hardware of the company and other minor business lines.
Profitability and Pricing Power
Among the various big social media platforms, the gross margin and operating margin of Facebook are far off better. The gross margin includes direct costs from business, and the operating margin includes R&D and salaries. Pinterest Inc. and Snap Inc. have negative operating margins since they’re focused on rapid growth.
Additionally, they also lack their gross margins. On the other hand, Facebook is at its critical mass user-wise phase, so its gross margin is more consistent, and that's a good thing if you're an investor.
Stock Valuation and Performance
Using the old-school valuation metrics used in the past, Facebook isn’t overvalued. Accordingly, its price-to-earnings ratio is at 24.4 based on the analysts from FactSet. And the predicted P/E ratio for next year’s earnings is around 25, while the forward P/E for S&P 500 Index is at 21.9, and the Nasdaq Composite Index is 31.5.
Compared to these two, you can see that Facebook’s P/E is normal among the broader market and is below its similar platforms. This is reasonable since, due to Facebook’s growth, lots of investors granted some premium valuation which is above sleepy stocks in other sectors.
The Facebook Stock reached a market cap of more than $1 trillion in the beginning of July, 2021, which makes it the top 5 of the most valuable companies in the S&P 500 index, which includes Apple, Amazon, Google, and Microsoft. And on July 2, a stock costs $354.39.
Fundamental Analysis of Facebook’s Stock
Based on ChartMill, Facebook has an overall fundamental rating of 8 out of 10 compared to other 383 networks in the industries such as data processing, computer programming, and other computer-related services. The fundamental analysis of Facebook stock involves:
Profitability
Facebook scored 10 out of 10 in profitability due to these reasons:
- It has a 20.63% Return of Assets which is one of the best returns in the industry since the average is -2.42%.
- Its profit margin is at 35.74%, which is also significantly better compared to the industry average of -4.38%.
- It has a Return on Equity of 25.24%, which is still better than the average of 13.29%.
- Based on Piotroski-F, Facebook has a score of 8, which implies good health and profitability.
Valuation
In terms of valuation, Facebook garnered a 5 out of 10. This is because:
- Facebook is valued lower than the industry average P/E ratio of 42.73.
- The forward P/E ratio of FB is at 21.93, which shows that it’s expensive.
- Its price-book ratio is in line with the industry’s average book ratio of 6.64.
Growth
Scoring 8 out of 10, Facebook has:
- 35.80% growth in its Earnings per Share and is growing at an average of 33.83% each year. Additionally, it’s predicted to grow by 20.07% on average each year for the next five years.
- 28.68% growth in its Revenue for the past year.
- The EPS growth will decrease for the next five years.
- Comparing the growth rate of the revenue, the next few years will have a lower growth compared to the past years.
Health
Facebook has a perfect health rating because of the following reasons:
- With its current ratio at 6.08, Facebook isn’t having any trouble paying its short-term obligations. It’s better than the industry average of 1.98.
- It has an Altman-Z score of 22.09, implying that Facebook is not near to bankruptcy.
- The Debt to Equity ratio belongs to the industry averages.
Dividend
This is the only 0 out of 10 rating of Facebook since Facebook doesn’t offer dividends.
What Affects The Price of Facebook?
Since the price of Facebook stock fluctuates, there are some factors or things investors or traders usually look out for. These factors can affect the price, and these include:
Active Users
Even though there are now billions of users of Facebook, Munster predicted that it would reach a saturation point. According to this prediction, there will come a time when the number of new active users will decrease and stop, and the users will spend less time on the company’s platforms.
Ad Revenue
Facebook is very reliant on ad revenue. In 2017, Facebook’s ad revenue reached 98% based on Statista.com. But the cost of advertising on the platform has grown up to 219%, which means that there are ad users that receive great results, but most of them don’t. This shows that the company is lacking in terms of revenue diversification. And relying on only one source of revenue is risky.
Competition
There are many rival platforms that continue to rise in the industry, and Facebook can't buy all of them like how they bought Instagram for $1 billion. And with the competition increasing, this may cause some active users to turn away from Facebook or use it less.
Risks in the Market
This will probably affect any stock the most. When the stock market experiences a crash or a crisis, there isn’t much any company can do. For instance, during the dot-com crisis, NASDAQ incurred over 75% of its value, and it’s hard to predict when another crisis may come.
Regulatory Risks
This can also affect the price since social media is viewed as an unregulated market. These risks include misuse of Facebook like what happened back in 2016. Data of about a million users of Facebook fell to the hands of foreign political operators when Facebook allowed Cambridge Analytica’s political data firm to acquire this data. Instances like these may result in fewer users, leading to less ad revenue.
Facebook Stock’s Historical Performance
Specifically, in 2012, Facebook experienced three significant events:
- It was the first social network that reached over a billion users.
- With its Initial PPublic Offering or IPO, Facebook raised up to $16 billion.
- The price of each IPO share reached up to $38 that made the valuation of the company reach $104 billion.
In the same year, the company acquired Instagram and WhatsApp after two years. And in 2019, Facebook is considered one of the most popular social networks, resulting in a relatively high price in its stock.
Trading during the first year wasn’t doing good for Facebook. At least 50% of the stock lost its first valuation and needed over a year to get it back to more than $100 billion. From $250 billion in 2015, it has crossed $500 billion in 2017, and it continued to rise up until now.
How Is Facebook After the Coronavirus?
Despite COVID-19, Facebook is doing relatively well. Although there are many companies in various industries that were left devastated after the coronavirus, Facebook still had a relatively good year. As mentioned, its revenue grew 22% and reached up to $86 billion. Its active users per month also increased up to 2.8 billion.
Since people are forced to not go out often and stay at home because of the pandemic, they spend most of their time on various social media platforms such as Facebook. And for businesses to reach many users, they had to advertise on Facebook. And since Facebook greatly relies on ad revenue, it’s been doing well even after the coronavirus.
Facebook 2021 Results
The performance of Facebook Stock has been great ever since and is continuously consistent through the years. The most recent and data of Facebook stock, on June 24, 2021, based on Macrotrends, includes:
- A closing stock price of $343.18.
- A 52-week high stock price of $344.90 that’s more than 0.5% of the current share price.
- A 52-week low stock price amounting to $207.11, which is about 39.6% less compared to the current share price.
- An average Facebook stock price of $278.95 for the last 52 weeks.
What to Expect in the Future?
Based on Wall Street analysts, the consensus target price that covers Facebook is about $205 and implies some possible upside of over 15%. If Facebook performs well, it might join Apple in the group of networks that have crossed the $1 billion market cap mark. And this is likely to happen since it now has over 2.2 billion active users.
TechnicalAnalysis of Facebook Stock
Even though there are many risks and factors that can affect Facebook stock, if you look at Facebook in a long-term sense, the outlook is still positive. However, this can also depend on how the company itself and the stock are analyzed.
There two main ways to analyze: through Fundamental analysis and Technical analysis. Fundamental analysis of Facebook stock has been discussed in this guide, and it focuses on the intrinsic value of the stock. However, with technical analysis, investors use statistics of the stock.
Generally, to analyze Facebook, you must perform due diligence so you can be sure that the company and the stock can possibly do well. And you can include a technical analysis in this. Any investor must analyze the growth of the ad revenue of the company or the stock as well as risks and usage trends. Technical analysis focuses on analyzing trends and patterns in the current and future price fluctuations of the stock. Here are some more general indicators you might want to look at:
- Momentum and volume indicators
- Moving averages
- Oscillators
- Resistance and support levels
However, you may encounter some limitations with the technical analysis, such as:
- It might work in some cases and might not work on some since it has a self-fulfilling prophecy.
- Since history doesn’t repeat itself, analysis of the pattern of the price is tedious and can be ignored.
- Some analysts believe that you shouldn’t expect any actionable information from all the historical price and volume data.
Pros and Cons of Facebook Stock
Facebook stock isn’t always advantageous when you buy it and may also provide some disadvantages. To know Facebook stock better, here are some pros and cons of purchasing it.
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How to Invest and Trade FacebookStock
When you buy Facebook stock, there are two major strategies - through investing in it or trading it. And these are two different ways, when you invest, you buy the stock and wait for it to reach a significant amount, or after a certain period of time and sell it, it’s a long-term strategy. But when you trade it, you buy it and sell it again after some time when the market conditions are great - it’s a short-term strategy.
Investing in Facebook Stock
Investing starts with buying. Remember that Facebook trades on NASDAQ and is part of the S&P 500 index. And as mentioned, investing is a long-term approach, so it’s a better approach for people who have money to spend and spare and for people who prefer keeping stocks as assets and don't have time to sell regularly. Here are the steps you need to follow to invest:
- Decide on how much you would like to invest.
- Choose and join a broker.
- Deposit your funds.
- Place an order to buy stock.
Trading Facebook Stock
Aside from investing, you can also trade Facebook shares using a contract for difference or CFD or spread bets. Using these two, your results will depend on the full value of your position.
Technically, the steps you need to follow are the same as when you invest in Facebook stock. You choose your broker or platform, open an account, deposit your funds, and buy your stock. The only difference is when trading, you have an additional step, which is to sell or trade what you bought after a short period of time.
Specifically, when you trade CFDs, you’re watching and observing if the price will go up or go down. And based on your prediction, you can go long or go short. If you expect the price to go up, you can go long. But if you expect it to go down, you can go short. And remember that with CFDs, you’re exchanging the difference between the opening and closing difference of your gainposition.
On the other hand, when you spread bet, you’re betting based on the point on its share price movement. So if you predicted correctly, it will result in a profit, and if you're wrong, you will make a loss.
Conclusion
There are various ways you can take advantage of Facebook stock. If you prefer to do it in a long-term approach, you can just invest. But, trading with CFD is also a good way to participate in the market since it would require less time for you to possibly get it compared to investing. The best way for anyone to decide is to practice so that they can try whichever without any risk. And to practice, opening a Libertex demo account is always the best choice.
Why to trade with Libertex?
- access to a demo account free of charge
- technical assistance to the operator 5 days a week, from 8 a.m. till 8 p.m. (Central European Standard Time)
- leverage of up to 1:999 for professional clients
- operate on a platform for any device: Libertex and Metatrader
FAQ
Should I Sell Facebook Stock?
Many traders and investors have been interested in Facebook stock over the years. And they either just invest in it or trade it. Both include selling of the stock but differ in time. If you want to sell the Facebook stock after just some time, you should trade. But if you want to sell it when the “right” time comes, you can just invest.
Does Facebook Stock Pay Dividends?
No, Facebook Stock doesn't pay dividends. Although Facebook, Inc. is such a successful and big company, it doesn’t distribute any of its earnings. And so, the only opportunities you have with Facebook are investing in and trading its stocks.
Is Facebook Publicly Traded?
Yes, it’s publicly traded. Facebook stock is traded on NASDAQ under the ticker label of “FB.” Also, it filed an initial public offering (IPO) which shows that Facebook is publicly traded.
How Many Shares Does Facebook Have?
There are currently over 2.8 billion Facebook shares. And various people all over the world own these shares. But, the best or the largest shareholder of Facebook is Mark Zuckerberg. In the same year, the company acquired Instagram and WhatsApp after two years. And in 2019, Facebook is considered one of the most popular social networks, resulting in a relatively high price in its stock.
Why Is Facebook Stock Down?
There are many things that could affect the fluctuation of Facebook stock. The major reason is the number of active users. If the number of users who leave Facebook and choose some other social media network due to certain reasons increase, the revenue of Facebook goes down.
How to Buy Facebook Stock?
Buying a Facebook Stock is easy. First, you have to decide which broker or platform to join. Create an account and deposit your decided funds for the purchase. Place your order and pay.
Why Buy Facebook Stock?
Facebook stock is consistent in various aspects and has the possibility to grow more in the future. Buying Facebook stock can be successful if you use it appropriately. Also, Facebook is also a popular social media network; hence it will not fall or go bankrupt anytime soon.
How to Buy Facebook Stock Without a Broker?
Although the most common way of buying Facebook stock is with a broker, you can also buy it without one. You can do this through the Direct Stock Purchase Plan (DSPP), where you’ll be helped by a transfer agent. The company will allow you to purchase shares through this directly.
Is Facebook Stock a Good Buy?
Facebook is a big thing now, so yes, it’s a good buy. Also, it has more than 2 billion shares which proves that it’s a good buy for many people.
How Much Is One Share of Facebook Stock?
As of June 25, 2021, the Facebook share is worth over $343.18. But over time, at 10:53 AM GMT on the same date, it fell down to $340.41. It’s good to remember that the price fluctuates, so you shouldn’t expect a fixed price.
When Will Facebook Stock Split?
Over the years, there hasn’t been any stock split history. A winning stock is considered by many investors when a company decides to do a stock split. However, although there are plans for splits, there’s still no final date for the split.
How Do I Invest in Facebook Stock?
Investing in Facebook stock can be done with simple steps. First, find a broker. Then deposit your funds. Decide on how much you want to invest and place an order once decided. With your share, you can wait for the time you want or when you can sell it the highest.
