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About us

Based out of Auckland, New Zealand, we bring an institutional trading experience to the retail market.
Mark O' Donnell
Research Analyst
August 13, 2020

Stock of the week: Facebook (FB)

Stock of the week: Facebook (FB)

We're trying something new here at Blackbull Markets! With MT5 on the Horizon, Blackbull Market clients will soon be able to have access to over 350 US stocks to trade. Hence, we're adding a new weekly article: Stock of the week! If you have any questions or have any stocks, in particular, you want us to cover in more detail, let us know.

Up 25.22% for the year. Current Stock Price: $261.30

Stock of the Week: Facebook (FB)

Facebook's Business:

We all know what Facebook is – however, broken down, they are a social media conglomerate comprised of their primary business Facebook with full ownership stakes in social media platforms Instagram and WhatsApp. All of their companies combined host 2.5 Billion users. To put that into perspective, there are an estimated 7.8 billion people on this planet, therefore their platforms host just under a third of the population.

Facebook, like many tech firms, generate revenue through selling advertising on their platforms. Last year, Facebook and its family of products generated $70.697 Billion in revenue, up from $55.838 Billion in 2018. Currently, founder Mark Zuckerberg is the CEO of the company.

Facebook's Catalysts:

Facebook, like many tech firms, are flush with cash and have high operating margins. Over the past two years, Facebook has had an average net operating margin of 40%. Due to the nature of the online business, it has held steady during the peak Coronavirus pandemic as everyone retreated to their homes, reliant on the internet.

Facebook currently gets the bulk of its advertising revenue from its main products, Facebook, and Facebook messenger. They have slowly introduced advertisements on Instagram; however, they have not monetized WhatsApp whatsoever. These two products alone, if monetized to their full potential, may provide a significant upside to their revenue and stock price. This is not to mention the other avenues they have stated to be perusing, such as Facebook Shops and dating.

Facebook's Risks:

Facebook have seen their fair share of scrutiny. From the Cambridge Analytica scandal in 2018 to the recent boycott in advertisers due to Mark Zuckerberg's relatively non-governance stance for news on Facebook. Events like these risks a decline in revenues if boycotts gain traction. However, a bulk of Facebook's income comes from small to medium-sized businesses, reliant on the 2.5 Billion active users to promote their goods or services. Therefore, these risks are quite low and should not post an immediate threat in the long run to the stock price.

Their stock is at an all-time high. Today, the stock sits at $261.08c, trading at a 33 times price-to-earnings multiple.

Tailwinds have come from the Coronavirus pandemic, forcing people to stay at home alongside the government having a negative stance on TikTok. Furthermore, they recently announced their TikTok competitor, Facebook reels. If President Donald Trump is successful in banning TikTok in the United States, this will be a massive tailwind for Facebook.

Facebook - Conclusion:

Facebook is likely poised to excel in the longer term, especially with Mark Zuckerberg at the company's helm. He has shown to have shareholders' interests at heart, mainly because he currently owns a 13.3% stake.

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