- Facebook went from Mark Zuckerberg’s dorm room to a trillion-dollar social media conglomerate.
- The company is highly profitable and is still growing at a substantial rate.
- Regulators and politicians don’t seem to like Facebook much, but the quality of its platforms is hard to ignore.
Mark Zuckerberg and his social media company Facebook (NASDAQ:FB) have come a long way from the origin story depicted in The Social Network, a fictionalized account of actual events that came out 11 years ago.
Evolving from a simple social media website, Facebook is now a conglomerate with a tight hold on billions of consumers’ eyeballs. It’s also gotten into its share of hot water over the years with regulators over its thirst for consumer data, shrouding the company in controversy.
That’s what we see on the surface when it comes to this company (and its stock). But as we peel back the layers of the onion, there emerge at least three reasons to buy Facebook stock and one reason to sell it.
Image source: Getty Images.
Buy reason No. 1: Facebook is still growing (and evolving)
Facebook has become much more than the social network the company is named after. CEO and founder Zuckerberg has been somewhat sneaky with acquisitions over the years, acquiring Instagram for $1 billion in cash and stock in 2012 and the messenger app WhatsApp for $16 billion in stock and cash in 2014. Today, Instagram and WhatsApp have 1 billion and 2 billion users, respectively.
The trio of Facebook, Instagram, and WhatsApp have driven the company’s user growth, from 2.4 billion monthly active users in the second quarter of 2019 to 2.9 billion in Q2 2021, a 20% increase. In other words, more than one-third of the global population now uses a Facebook-owned social media platform at least once a month.
Zuckerberg has made wise decisions in his acquisition of Instagram, correctly predicting that users would gravitate toward image-based content on social media platforms. He has again indicated a belief about the future of how we interact, focusing on the metaverse, where the internet and physical worlds overlap, as the next digital frontier.
Facebook owns Oculus, a company that makes augmented/virtual reality headsets. It recently put together a team dedicated to the metaverse and announced its first iteration of smart glasses via a partnership with Ray-Ban. It seems clear that Facebook is trying to expand the limits of its reach beyond the phones we hold in our hands.
Buy reason No. 2: Facebook makes a ton of money
Facebook’s ability to make money from its users is impressive. In its most recent quarter, Q2 2021, the company generated $10.12 in revenue per user, a 43% increase from just a year prior. The company makes the vast majority of its revenue through advertising (about 98%), collecting a wide range of data from its users, then selling targeted ads to other brands based on that data.
Its business is very profitable, converting 29% of its Q2 2021 revenue into free cash flow (FCF), amounting to $8.5 billion FCF on $29 billion in revenue. Facebook doesn’t pay a dividend; it reinvests back into the business to drive growth while using excess cash to buy back shares to grow its per-share earnings.
Buy reason No. 3: Facebook’s stock price is reasonable
Its market cap of $1.02 trillion makes it hard to call Facebook’s stock “cheap,” but its valuation could be reasonable. Facebook’s expected full 2021 earnings per share of $10.09 puts the stock at a price-to-earnings (P/E) ratio of 35.
Analysts estimate that Facebook will grow its earnings by 22% per year for the next three to five years, so even if a P/E ratio of 35 isn’t “cheap,” the company could quickly grow into its valuation despite its large size.
A reason to sell: Government threats are unpredictable
Facebook’s biggest problem is that it draws negative attention from regulators and politicians around the world for its invasive data policies, the occasional spread of misinformation on its platforms, and its role in how information spreads among the public.
The company was caught up in a scandal that broke in 2018 when a company called Cambridge Analytica harvested user data from millions of users without their consent in 2014-15 that was used to target voters in several 2016 elections. The Federal Trade Commission fined Facebook $5 billion for failing to protect its user data.
Facebook has brushed with the U.S. government on other instances, including allegations of anticompetitive practices, with some regulators calling for the company’s breakup. The Federal Trade Commission launched another antitrust lawsuit in August. Facebook is getting larger, not smaller, so investors need to be aware that there is always an unpredictable risk of facing pressure from the government.
Does the good outweigh the bad for Facebook stock?
Despite the ongoing risks of government interference, Facebook is a great company that grows and generates a ton of cash for both the business and its investors. The metaverse addressable market could be worth as much as $280 billion by 2025, and Facebook is aggressively positioning itself to get its share. Success could mean years of continued growth for the company.
Meanwhile, despite its $1 trillion market cap, the stock is reasonably priced. Investors should monitor the company’s ability to monetize its user base to indicate how Facebook’s platforms are performing. The recent 43% year-over-year bump in revenue per user shows that Facebook could have a lot left in the tank.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
Justin Pope has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Facebook. The Motley Fool has a disclosure policy.
Facebook Adds New Trend Insights in Creator Studio, Which Could Help Shape Your Posting Strategy
Facebook’s looking to provide more content insight within Creator Studio with the rollout of a new ‘Inspiration Hub’ element, which highlights trending content and hashtags within categories related to your business Page.
As you can see in these screenshots, posted by social media expert Matt Navarra, when it becomes available to you, you’ll be able to access the new Inspiration Hub from the Home tab in Creator Studio.
At the right side of the screen, you can see the first of the new insights, with trending hashtags and videos from the last 24 hours, posted by Pages similar to yours, displayed above a ‘See more’ prompt.
When you tap through to the new hub, you’ll have a range of additional filters to check out trending content from across Facebook, including Page category, content type, region, and more.
That could be hugely valuable in learning what Facebook users are responding to, and what people within your target market are engaging with in the app.
The Hub also includes insights into trending hashtags, within your chosen timeframe, which may further assist in tapping into trending discussions.
How valuable hashtags are on Facebook is still up for debate, but you’ll also note that you can filter the displayed results by platform, so you can additionally display Instagram hashtag trends as well, which could be very valuable in maximizing your reach.
Much of this type of info has been available within CrowdTangle, Facebook’s analytics platform for journalists, for some time, but not everyone can access CrowdTangle data, which could make this an even more valuable proposition for many marketers.
Of course, overall performance really relates to your own creative, and thinking through the action that you want your audience to take when reading your posts. But in terms of detecting new content trends, including hashtag usage, caption length, videos versus image posts, and more, there’s a lot that could be gleaned from these tools and filters.
It’s a significant analytics addition – we’ve asked Facebook for more info on the rollout of the new option, and whether it’s already beyond test mode, etc. We’ll update this post if/when we hear back.
Meta Updates Policy on Cryptocurrency Ads, Opening the Door to More Crypto Promotions in its Apps
With cryptocurrencies gaining momentum, in line with the broader Web 3.0 push, Meta has today announced an update to its ad policies around cryptocurrencies, which will open the door to more crypto advertisers on its platforms.
As per Meta:
“Starting today, we’re updating our eligibility criteria for running ads about cryptocurrency on our platform by expanding the number of regulatory licenses we accept from three to 27. We are also making the list of eligible licenses publicly available on our policy page.”
Essentially, in order to run any crypto ads in Meta’s apps, that currency needs to adhere to regional licensing provisions, which vary by nation. With crypto becoming more accepted, Meta’s now looking to enable more crypto companies to publish ads on its platform, which will provide expanded opportunity for recognized crypto providers to promote their products, while also enabling Meta to make more money from crypto ads.
“Previously, advertisers could submit an application and include information such as any licenses they obtained, whether they are traded on a public stock exchange, and other relevant public background on their business. However, over the years the cryptocurrency landscape has matured and stabilized and experienced an increase in government regulation, which has helped to set clearer responsibilities and expectations for the industry. Going forward, we will be moving away from using a variety of signals to confirm eligibility and instead requiring one of these 27 licenses.”
Is that a good move? Well, as Meta notes, the crypto marketplace is maturing, and there’s now much wider recognition of cryptocurrencies as a legitimate form of payment. But they’re also not supported by most local financial regulators, which reduced transaction protection and oversight, which also brings a level of risk in such process.
But then again, all crypto providers are required to clearly outline any such risks, and most also highlight the ongoing market volatility in the space. This expanded level of overall transparency means that most people who are investing in crypto have at least some awareness of these elements, which likely does diminish the risk factor in such promotions within Meta’s apps.
But as crypto adoption continues to expand, more of these risks will become apparent, and while much of the crypto community is built on good faith, and a sense of community around building something new, there are questions as to how much that can hold at scale, and what that will then mean for evolving scams and criminal activity, especially as more vulnerable investors are brought into the mix.
Broader promotional capacity through Meta’s apps will certainly help to boost exposure in this respect – though again, the relative risk factors are lessened by expanded regulatory oversight outside of the company.
You can read more about Meta’s expanded crypto ad regulations here.
Meta Outlines Evolving Safety Measures in Messaging as it Seeks to Allay Fears Around the Expansion of E2E Encryption
Amid rising concern about Meta’s move to roll out end-to-end encryption by default to all of its messaging apps, Meta’s Global Head of Safety Antigone Davis has today sought to provide a level of reassurance that Meta is indeed aware of the risks and dangers that such protection can pose, and that it is building safeguards into its processes to protect against potential misuse.
Though the measures outlined don’t exactly address all the issues raised by analysts and safety groups around the world.
As a quick recap, back in 2019, Facebook announced its plan to merge the messaging functionalities of Messenger, Instagram and WhatsApp, which would then provide users with a universal inbox, with all of your message threads from each app accessible on either platform.
The idea is that this will simplify cross-connection, while also opening the door to more opportunities for brands to connect with users in the messaging tool of their choice – but it also, inherently, means that the data protection method for its messaging tools must rise to the level of WhatsApp, its most secure messaging platform, which already includes E2E encryption as the default.
Various child safety experts raised the alarm, and several months after Facebook’s initial announcement, representatives from the UK, US and Australian Governments sent an open letter to Facebook CEO Mark Zuckerberg requesting that the company abandon its integration plan.
Meta has pushed ahead, despite specific concerns that the expansion of encryption will see its messaging tools used by child trafficking and exploitation groups, and now, as it closes in on the next stage, Meta’s working to counter such claims, with Davis outlining six key elements which she believes will ensure safety within this push.
Davis has explained the various measures that Meta has added on this front, including:
- Detection tools to stop adults from repeatedly setting up new profiles in an attempt to connect minors that they don’t know
- Safety notices in Messenger, which provide tips on spotting suspicious behavior
- The capacity to filter messages with selected keywords on Instagram
- More filtering options in chat requests to help avoid unwanted contact
- Improved education prompts to help detect spammers and scammers in messages
- New processes to make it easier to report potential harm, including an option to select “involves a child”, which will then prioritize the report for review and action
Which are all good, all important steps in detection, while Davis also notes that its reporting process “decrypts portions of the conversation that were previously encrypted and unavailable to us so that we can take immediate action if violations are detected”.
That’ll no doubt raise an eyebrow or two among WhatsApp users – but the problem here is that, overall, the broader concern is that such protections will facilitate usage by criminal groups, and the reliance on self-reporting in this respect is not going to have any impact on these networks operating, at scale, under a more protected messaging framework within Meta’s app eco-system.
Governments have called for ‘backdoor access’ to break Meta’s encryption for investigations into such activity, which Meta says is both not possible and will not be built into its future framework. The elements outlined by Davis do little to address this specific need, and without the capacity to better detect such, it’s hard to see any of the groups opposed to Meta’s expanded encryption changing their stance, and accepting that the merging of all of the platform’s DM options will not also see a rise in criminal activity organized via the same apps.
Of course, the counterargument could be that encryption is already available on WhatsApp, and that criminal activity of this type can already be undertaken within WhatsApp alone. But with a combined user count of 3.58 billion people per month across its family of apps, that’s a significantly broader interconnection of people than WhatsApp’s 2 billion active users, which, arguably, could open the door to far more potential harm and danger in this respect.
Really, there’s no right answer here. Privacy advocates will argue that encryption should be the standard, and that more people are actually more protected, on balance, by enhanced security measures. But there is also an undeniable risk in shielding even more criminal groups from detection.
Either way, right now, Meta seems determined to push ahead with the plan, which will weld all of its messaging tools together, and also make it more difficult to break-up its network, if any antitrust decisions don’t go Meta’s way, and it’s potentially pressed to sell-off Instagram or WhatsApp as a result.
But expect more debate to be had, in more countries, as Meta continues to justify its decision, and regulatory and law enforcement groups seek more options to help maintain a level of accessibility for criminal investigations and detection.
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