Facebook (NASDAQ:FB) is by far the world’s most popular social website and perhaps the most popular global website. It is used by nearly 1.9 billion people (monthly active users as of Jan 2017), and makes its money from advertisers wanting to access the user base. Facebook offers advertisers a unique targeted approach unlike its competitors. While many think that Facebook stock’s $400 billion market capitalization is too rich, I think it is quite a discount.
Staggering statistics on Facebook (NASDAQ:FB) use
- 1.9 billion Facebook (NASDAQ:FB) monthly active users, soon to break the 2 billion mark.
- 182.5 million new active users per year. That’s equivalent to a staggering 500,000 new users a day.
- Even Instagram Stories, just one of Facebook’s many niches, has 200 million daily active users. That’s 50 million more than January and 40 million more than Snapchat’s competing service.
- Based on the above Facebook is growing its net monthly active user base at 9.6% per annum.
Imagine for a moment if you could own part of a company that was gaining 500,000 new customers a day. Based on the above January 2017 numbers and the current rate of new users, Facebook will have doubled its user base in 10.4 years. So by 2027, Facebook should have around 3.8 billion monthly active users, and by 2030 around 4.5 billion. Additional to this will be new users on their other platforms such as the super popular Facebook Messenger, WhatsApp, and Instagram, which has severely disrupted text messaging and photo sharing.
Meanwhile, operation costs can be controlled and generally will grow at a lot lower dollar amount than revenues. This means increasing net profit margins and profits each year while the growth is being sustained. The chart below shows Facebook’s incredible revenue growth. Net profit margin is currently a staggering 36.86%.
Here is another from BNLMarketAnalytics.com showing Facebook’s monthly active user growth. Notice how revenue is growing much faster than user growth? That shows that Facebook is doing a remarkable job at monetizing its user base.
Facebook has some competitors such as SnapChat (SNAP) or WeChat (owned by Tencent (OTC:TCEHY) in China); however Facebook tends to buy out most would-be competitors, such as WhatsApp and 60 others.
Current PE is 32 and 2018 forecast PE is 21. Analysts will debate the rate of revenue and earnings growth, but their consensus earnings per share ((EPS)) is shown below. 2017 EPS estimated at US$4.41 or 26% growth for 2017. I think it is reasonable to expect Facebook can double its user base in 10 years and thereby grow its profits around 20-30% CAGR during that period, given the increased users and potential to increase the average advertising revenue across their various platforms (Facebook, WhatsApp, Messenger etc).
Some might think such growth is impossible. However, the following two charts from BNLMarketAnalytics.com beg to differ. Look at the gap between U.S. and Canada and Asia Pacific average revenue per user. There is a lot of room for Facebook to grow revenue abroad, and it plans to do just that.
They will also increase monetization across their platforms and added to this maybe Oculus (virtual reality) revenue. The key is costs can be controlled and are generally fixed by nature of the business. All this leads to super profits and rapidly rising earnings per share.
2016(a) 2017 (e) (e) 2018 2019 (e)
Facebook is a sticky business
3 reasons Facebook users are unlikely to leave:
· Facebook holds your memories (your pictures and videos from the past).
· Facebook Messenger is where all your friends are, and it replaces texting and Skype.
· Facebook, Messenger, and WhatsApp are all free for users.
Facebook stock on a forward PE of 21 may look expensive to some people. But given there are 7.4 billion people on the planet and growing fast, Facebook (NASDAQ:FB) could conceivable double its total users in a matter of just 10 years or less. The magic with Facebook is it has fixed and controllable costs so that as revenue increases, margins can increase, leading to ever growing profits. Added to this it is a sticky business with users unlikely to leave a free and fun social network.
Facebook stock is a must have in any portfolio, and should be bought now and accumulated on any price dips. BNL Finance currently has a Buy rating on Facebook stock in the BNL Research Platform.