Facebook Stock Forecast

 Originally posted on https://financhill.com/blog/investing/facebook-stock-forecast

By any measure, the past year has been a difficult one for Facebook [NASDAQ: FB] shareholders.

In a single week, the company lost nearly $75 billion of its market value following an announcement that user data had been released without consent.

Shortly thereafter, Founder and CEO Mark Zuckerberg and COO Sheryl Sandberg were called to testify before Congress on this matter. They also had to respond to allegations that the social media platform was misused to influence the 2016 presidential election.

Facebook ended 2018 down by more than 20%. This was quite a blow to investors, who had long relied on Facebook’s steady growth to form a solid foundation for their portfolios.

Since the Congressional hearings, Facebook [NASDAQ: FB] has made a number of changes, including deleting questionable profiles, tightening security and privacy features, and adjusting the platform’s focus.

Instead of heavy advertising in user news feeds, the company focused on the interactions are now with other individual users.

The drop in paid advertising may have temporarily slowed Facebook revenues, but many investors believe the stock is primed to reach and exceed its previous record highs. So is now the time to buy Facebook stock?

Despite the challenges Facebook encountered in 2018, objectively the company remains in a strong competitive position.

It is the top social media platform in the world, and though there are other popular social media options, none offer quite the same selection of features and services as Facebook. This is clearly reflected in analysis of performance and financial metrics.

One of the biggest measures of success for a social media platform is Daily Active Users (DAU) – the number of unique users who log on at least once each day.

For 2018, this figure stayed essentially flat in the US, Canada, and Europe – perhaps due in part to the negative media attention that plagued Facebook for most of the year.

However, another critical metric showed substantial growth, offsetting any concerns about the DAU.

The Average Revenue Per User (ARPU) in the United States and Canada increased by 30 percent annually and 7% sequentially in Facebook’s most recent quarter.

The ARPU in Europe showed similar gains, growing 29 percent annually and 1% sequentially.

Facebook’s ability to achieve higher per-user revenues offsets the lack of growth in DAU.

This alone could drive Facebook share prices back to previous highs, but the improved ARPU isn’t the company’s only bright spot.

Facebook’s biggest markets are currently in North America and Europe, but there are many indications that the balance could shift.

In other countries, use of the social media platform is growing at a faster rate than in the US, Canada, and Europe.

DAUs in the Asia-Pacific region grew 18% year over year to a total of 561 million. In all other countries, classified as the Rest of the World, DAUs grew 9% to a total 470 million.

Combined, the Asia-Pacific and the Rest of the World make up 69% of Facebook’s total DAUs. This figure illustrates that there is plenty of opportunity for growth, despite the issues facing the company domestically.

These markets show an increase in ARPU, as well as DAU.

Despite economic challenges in the Latin American economies, total ARPU for the Rest of the World increased 14 percent.

In the Asia-Pacific region, ARPU rose 18% annually and 2% sequentially.

These gains were primarily driven by growth in the Philippines, India, and Indonesia.

All three of these countries are seeing stronger GDP growth than the majority of Europe, the United States, and Canada, so it appears that Facebook will continue to see improved ARPU in Asia-Pacific markets.

There is no cost to own a Facebook profile, page, or group, so it took some time for the company to develop a strong revenue model.

Once it found balance between facilitating social interactions and advertising, the marketing power Facebook holds became unstoppable.

Globally, only Google [NASDAQ: Alphabet] rivals Facebook in online advertising.

Together, the two control 60% of the world’s online advertising market. This ensures that businesses will continue to be attracted to Facebook for new marketing campaigns.

In addition to the potential for generating revenue through Facebook’s primary social media platform, the company also enjoys income from advertising purchased on its subsidiary, Instagram.

Because Instagram caters to a separate demographic, Facebook has a diverse consumer base from which to draw.

In 2018, Instagram had more than one billion Monthly Active Users (MAU), and Instagram Stories exceeded 400 million DAUs.

For now, Instagram advertising generates a full 15% of Facebook’s total advertising revenue, and some analysts believe this figure could increase to 70% of all new revenue by 2020.

Whatever obstacles it faced in 2018, Facebook [NASDAQ: FB] continues to thrive.

It generated $17.5 billion in free cash flow during 2018, which is being invested in buybacks, acquisitions, and other strategic moves.

The company is working on a streaming platform that currently attracts 400 million MAUs, and it is ramping up e-commerce features on Instagram.

Additional tools and features are coming to WhatsApp and Messenger, and there are opportunities to dive into cybersecurity, virtual reality, and more.

The bottom line is that today’s low share prices may offer a rare opportunity for investors.

Those willing to accept the risks intrinsic to any technology company can purchase Facebook at a bargain today, and perhaps realize substantial gains in coming months and years.