Facebook: Don't Miss It - Facebook, Inc. (NASDAQ:FB)


Investment Thesis

Facebook (FB) came out of Q3 2019 swinging. While it’s certainly nice to have a good quarter, I believe readers should note my comments from last week:

Facebook has been making so many headlines of late, as the financial media puts a spotlight on what I declare in actuality totally irrelevant facts for shareholders.

Here, I go back to the core of the matter. How shareholders are getting a rare bargain opportunity by investing in Facebook at approximately $530 billion market cap.

Do not take the short-term view on Facebook.

This is an incredible opportunity and one of my favorite investments among large tech space.

Insatiable Growth? Fickle Shareholders?

During the present bull market investors have become notoriously infatuated with revenue growth rates. And Facebook evidently delivers on this front.

***author’s estimates

CFO Dave Wehner reaffirmed what was previously explained that Q4 2019 would be marked by mid-to-high single-digit deceleration but that for 2020 this deceleration would be less pronounced when compared with 2019.

The problem with Facebook, I posit, is that its shareholder base is often fickle. Why?

I declare this stems from the way CEO Mark Zuckerberg addresses all stakeholders. Although this is understandable, given that Zuckerberg is under terrific pressure on all fronts.

Nonetheless, I believe that with some improvement in the narrative, more shareholders would be willing to align themselves with the company and that the stock would trade at a premium to its potential, rather than at a discount.

Case in point: Remember that the latest figures show that a whopping 2.8 billion people use at least one of its family of platforms. That’s not only approaching half the world’s population. In actuality, this implies Facebook’s family of products is reaching nearly everyone that lives on more than $5.50 per day.

Long-Term Opportunity?

Facebook has a couple of noteworthy, although arguably underappreciated, opportunities down the road.

During the call, COO Sheryl Sandberg put on a spotlight on Messenger.

Source: messengerpeople.com

Highlighting that through Messenger, brands are able to reach more customers.

Another opportunity in the spotlight was the role of augmented reality to increase sales. Sandberg acquiesced that even though it was still early days, that nonetheless the potential to help consumers “browse, discover, buy and sell” is clearly upon us.

Next, during the Q&A, Instagram’s long-term potential was noted. Sandberg articulated how 90% of Instagram users follow a business. And that Facebook is attempting to reduce the friction between browsing and buying.

Valuation – Large Margin Of Safety

Source: author’s calculations

Readers may have an issue with the fact that I have chosen Snap (SNAP) as a competitor to Facebook.

Still, I defend my choice. Even though Snap is unprofitable and its business model’s inability to be cash-generative remains unproven, it still holds a significant competitive advantage over Facebook in that it has a stronger hold over its key demographic, 18- to 24-year-olds, than Facebook does.

Moving on, if 2017 was marked by a sense that these large tech companies could do no wrong, 2019 has been marked by a sense they can do no right!

From Facebook to Twitter (TWTR) to Alphabet (GOOGL)(GOOG), these companies have been plagued by questions over their growth prospects (Twitter), their relevancy (Facebook) and/or antitrust investigations (Facebook, Alphabet, Amazon (AMZN)).

Meanwhile, investors’ sentiment will oscillate from pessimistic to passionate in an unpredictable fashion.

But as everyone knows, the time to buy is when others won’t.

The Bottom Line

If you want to have a better performance than the crowd, you must do things differently from the crowd.

– John Templeton

I have argued that, amidst the minutiae of irrelevant detail, investors should not lose sight of what truly matters: Facebook is unrivaled and ultimately investors are not paying up for this potential.

Looking For Strong Returns?

Facebook is terrific! But numerous studies have shown that it is difficult to beat the market with popular names.

Meanwhile, by being extremely selective and investing in less popular companies, your chances substantially improve.

Investment strategy inspired by Buffett, Pabrai, and Greenblatt that can help you generate between 50% and 200% potential upside in just a few years, then sign up for your two-week free trial with Deep Value Returns today!

SKIN IN THE GAME: I’m always invested alongside you in My TOP 5 STOCKS!


Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.





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