Even if it outperformed, Facebook still seems to be dirt cheap. For the first quarter, the firm recorded a monstrous Q1 due to the corporation’s dominant market position. Facebook’s economy and growth continue to be positive. Despite having outperformed the S&P 500 by 8% so far this year, Facebook, with its strong competitive advantages, rapid growth, and appealing economics, still appears relatively inexpensive.
What is the true value of Facebook?
Data by YCharts Investors have had an easy time multiplying their profits on Facebook (FB) stock. The market capitalization of the social media giant stands at nearly $500 billion. Though Facebook is now a public company, its value remains largely intact. It has a market cap only slightly greater than Google parent Alphabet (GOOG)(GOOGL), a much more profitable business with vastly fewer assets. The social media giant published a fantastic first quarter that has sent shares soaring higher. Facebook reported its results for the first quarter on Wednesday, May 2nd. First-quarter sales grew at a stunning pace, reaching nearly $13.2 billion.
Facebook’s underlying economics
Facebook’s Gross Margins and Operating Margins improved significantly after the company transitioned to GAAP. The improvement was primarily due to reducing the firm’s promotional spending (i.e., News Feed) to reach more active users and reduce churn. With advertisers now having access to a more accurate picture of the total number of users on Facebook, they are likely to increase their spending on the social network (and expect their ROI to improve). During the first quarter of 2021, the average cost per click (CPC) decreased 2% on average from Q4 2020. On the other hand, the average cost-per-click (CPC/clicks) increased 10% from Q4 2020.
Facebook’s competitive advantages
Facebook’s competitive advantages are to be found:
- The quality of the content that is shared on the platform.
- The strength of the company’s infrastructure.
- Its large user base.
As social networks are the most effective way for large organizations to spread information, it’s no surprise that they are the most successful forms of communication. According to Statista, 58% of the world’s population uses a social networking site, including 54% of Americans and 72% of the population in Germany. Facebook’s core products allow the social media giant to scale its economy and grow its users organically and through acquisitions.
Facebook’s rapid growth
As per Facebook’s quarterly results, the company continued its growth at a tremendous pace. For the first quarter, revenues grew by 60% year over year to $11.4 billion, with daily active users increasing by 17% year over year to 2.2 billion. This is a spectacular figure, which reflects Facebook’s dominance in its industry. The total number of advertisers on Facebook increased by 40% year over year, while the total number of ad impressions increased by 59% year over year. These metrics are some of the reasons why analysts forecast annual revenues of $41 billion by 2020. In addition, Facebook’s profits are rising as well. For Q1, the firm recorded a strong 37% increase in its quarterly profits to $3.9 billion, and the firm’s total net income of $5.1 billion exceeded $4.
Facebook’s economy and growth continue to be positive. Yet, the firm still trades at a very low multiple. The company’s growth will likely slow down from these levels. However, due to the monopolistic nature of Facebook’s leading position in social media, Facebook will likely continue to grow rapidly in the foreseeable future.