Facebook (NASDAQ 🙂 leads the way in the package of top technology stocks, including Apple (NASDAQ 🙂 and Netflix (NASDAQ :). The most surprising element in the FB meeting is that this upward movement has survived regulatory probes, fines and general distrust of this social media platform.
Facebook shares have risen by more than 40% this year and close to $ 185.67 on Friday. This strong recovery comes after a tumultuous 2018, in which equities fell 26%, which reduced investor confidence with a number of high-profile setbacks, including data breaches, concerns about user privacy and political manipulation of the platform.
Although the share is still trading below 14% compared to the highest point ever reached last summer, the powerful movement this year defies a doom scenario in which bears predicted a collapse in sales. Before that ended on June 30, Facebook reported a 28% gain in revenue, surpassing analysts' consensus expectations.
For the future there is no guarantee that the challenges will disappear for & # 39; the world's largest social media platform. In the last conference call with analysts in July, the company's finance director warned that Facebook's slowdown in revenue growth could extend this year, as growing restrictions on the amount of personal data that Facebook can collect and use for advertising will make it difficult to earn money through advertising sales.
There is no doubt that regulatory oversight and antitrust probes will continue to be a major challenge for the future growth of social media companies, as politicians and regulators are trying to put together a set of rules to control and combat abuse. But when it comes to Facebook, investors are becoming more and more certain of CEO Mark Zuckerberg's ability to produce market-based returns and downplay the company's conservative tone.
Here are the two main reasons for this optimism:
1. User growth
One of the most important standards that life and death is for any social media company is user engagement. A clear trend has emerged in recent quarters when it comes to Facebook's most important app. Growth in the most important regions where revenue is generated – North America and Europe – is stagnating.
The number of daily users of the company's social network Facebook and the Messenger app rose to 1.6 billion people in the second quarter, with a growth rate of 8% over a year ago – the second slowest in the history of the company.
Although growth in the main Facebook app has slowed down, the company is still quickly adding users to other features. A total of 2.7 billion people use at least one app owned by Facebook – Facebook, Instagram, WhatsApp or FB Messenger – every month, making it the world's largest social network.
2. New growth engines
What makes investors enthusiastic about the prospects of Facebook is the ability to continue to attract advertising dollars with its 2.7 billion users on different platforms. An important area for growth are the company's Stories functions, full screen photos and videos that users can post on Facebook, Instagram, WhatsApp and Messenger.
Facebook & # 39; s switch to e-commerce via its Instagram and What’sApp apps could add billions of dollars to its revenue within a few years. The Instagram photo sharing app, with ads in the photo feed and recently added e-commerce tools, is becoming an increasingly important part of the business.
To address a possible delay in its advertising activities, Facebook is pushing new areas, including payments and e-commerce. Zuckerberg said that now that Facebook users are connected to large networks of people and organizations, his next step is to help them get value from those connections.
Facebook said in June that it is expanding its video-on-demand service Watch and has collaborated with global publishers to bring their content to the Watch platform. Deutsche Bank analysts believe that by 2021, Watch could contribute $ 5 billion in revenue.
These growth initiatives come on top of the controversial cryptocurrency project of the company, Libra, which has been confronted worldwide since it was announced in June. According to Facebook, Libra's main goal is to enable people around the world to use and transfer money more cheaply than current options allow, and that adding Libra would be most useful in countries where bank options are scarce and the home currency is volatile.
Bottom Line
After a powerful rally this year, Facebook shares endure increased market volatility much better than other tech stocks. FB & # 39; s continued ability to generate engagement and income with its existing properties makes its shares a solid long-term bet despite recent regulatory setbacks.
