Estimated read time: 3 minutes
Publication date: 26th May 2021 12:12 GMT+1
Facebook (NASDAQ: FB) is one of the largest companies in the world. Valued at a market cap of $900 billion, FB stock is up an impressive 733% since its IPO. Comparatively, the S&P 500 has returned 270% in this period.
While past returns don’t matter much for investors, let’s take a look to see if Facebook stock is a good buy right now.
Facebook impresses with Q1 results
In the first quarter of 2021, Facebook reported sales of $26.2 billion, which was an increase of 48% year over year. Its operating income rose close to 100% to $11.4 billion while adjusted earnings were $3.30 per share. Comparatively, Wall Street forecast Facebook to report sales of $23.7 billion and earnings of $2.37 in Q1.
Facebook is the second-largest digital ad platform in the world after Alphabet’s (NASDAQ: GOOG)(NASDAQ: GOOGL) Google and it continues to benefit from the shift towards online enterprise ad spending. In the March quarter, ad prices were up 30% for Facebook and a part of this growth can be attributed to the COVID-19 pandemic that has acted as a tailwind for companies in multiple tech verticals.
FB CEO Mark Zuckerberg was optimistic about its Oculus AR/VR platform and said the business reached an inflection point in terms of revenue in Q1. Oculus makes up a majority of Facebook’s “other” category sales. This business reported sales of $732 million in Q1, an increase of 146% year over year.
While Facebook did not provide any guidance for Q1, it expects revenue growth to accelerate on a sequential basis.
A social media giant
Facebook is easily the undisputed leader in the social media vertical. Over 2.7 billion people use one or more Facebook applications each day that include WhatsApp and Instagram. It has 3.45 billion monthly active users or 44% of the world’s entire population on its platforms. We can see how Facebook has monetized its user base driving ad sales significantly higher over time.
Further, around 200 million businesses leverage the Facebook platform to engage with customers. The shift towards e-commerce in the last year has accelerated at a rapid clip. While physical stores closed, online storefronts stayed open and catered to consumer demand.
Facebook build the Marketplace which is one of the world’s leading platforms for people to buy and sell products. The company claimed over a billion people visit Marketplace each month. As it remains optimistic about growth in e-commerce, Facebook launched Shops in 2020. There are over a million active shops and more than 250 million monthly visitors on this platform.
During the earnings call, Zuckerberg confirmed, “We recently updated WhatsApp catalog, so businesses can keep them updated from their computers and to include what's in stock. We launched carts on WhatsApp last year, and people have used them to send orders more than 5 million times.”
What next for FB stock?
Wall Street expects Facebook to increase sales by 34.9% to $116 billion in 2021 and by 19% to $138.16 billion in 2022. Comparatively, its earnings are forecast to increase by 30.3% to $13.15 in 2021 and by 15% to $15.23 in 2022. This shows us that FB stock is trading at a forward price to sales multiple of 7.75x and a price to earnings multiple of 24.2x which is not too steep given its robust growth forecasts.
Analysts tracking Facebook stock have a 12-month average price target of $383 which is 21% above its current trading price. Facebook is a company that is a market leader and its stock is trading at a reasonable multiple. The e-commerce boom will positively impact FB’s revenue and earnings in the upcoming decade, making it a solid long-term bet.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
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