Here is why investing in the Facebook’s stock is such a great idea
Facebook is still on its way to profit once again in a last quarter this year. Its an extraordinary growing streak which continues from the last quarter when it reported a staggering $7bn in revenue, a number which exceeded even the most optimistic financial predictions.
However, even after this hugely positive announcement, the stocks plummeted 2,7% the very same day and later on at the same day shares plunged once again down to 7% as the company’s management said that they’ve reached the maximum advertising exposure that the user could encounter while browsing the site.
In this post I will try to explain why this might not be true.
First, people use Facebook a lot! There is no doubt about it. All other media type usage is on a decline with the newspapers and radio leading the death-race. As a matter of a fact, even the television now is being regarded as an old communication medium.
Internet on the other hand is experiencing a major explosion in a number of its users and its reach. Around 40% of the world population (3.5bn) has an internet connection today whereas in 1995, it was less than 1%. And many of these people online are Facebook’s users (1.7bn)! They use it for a bunch of use cases ranging from posting a text or a photo update to get in contact with their friends to following their favorite celebrities or fan pages.
Nevertheless, What almost nobody notices is that Facebook is embracing video and VR full on. Even the Zuckerberg himself said that “in 5 years Facebook is going to be all video”. Nowadays, a lot of people that are online don’t have unlimited data access and even in a lot of places the infrastructure is non-existent. Facebook is also changing this, with the drone-provided internet connectivity it aims to provide the internet access even to the furthest villages located in the sub-saharan Africa. Couple this with the fact that 5G internet connectivity (5G is about 1000 times faster than 4G) is about to make its entrance to the stage and in no time we will be living in a world full of rich streamed multi-media content.
As mentioned above, one of the reasons why the stocks plummeted was because the whole market is worried that Facebook has reached their global maximum and that from now on it will start to slow down. But, If you take into consideration the fact that these videos and VR experiences will definitely have some type of advertising emmbedded into them you will realize that Facebook will definitely still continue to grow and that there is a lot of untapped market potential that still lies ahead of them.
Interestingly, Facebook also now appears strongly determined to stop Adblocker, a software which acts as an intermediary and prevents users from seeing any ads while browsing different websites. The strategy payed off and their ad revenue just for desktop increased 18%.
So, why the heck Facebook might be doing this? One of the reasons that comes to my mind is the share buyback. Even though it will leave them a bit short on the cash depending on the amount of stock they buy-back; this is for sure one of the ways to provide their investors with a significant returns. Another reason for a buyback might be the creation of additional stock options for current and future employees (an action which would avoid the potential dilution compared to the case if they issue additional shares).
Another reason might be that market (at the moment) behaves irrationally and only considers short-term gains. However, if you extrapolate the current direction of the web you will see that it definitely gravitates around video and VR experiences. Why this didn’t happen before is due to the fact that the required infrastructure and the technology were not in place. Just consider the fact that the Facebook in its infancy didn’t even allow users to upload photos.