Decoding The Stock - FACEBOOK

When it comes to investing in the stock market, there are a plethora of options available. Sectors like tech, finance, pharma, automobile and more offer several different investment opportunities that one can choose from. Starting from large blue-chip companies like Amazon and Apple to small and unknown penny stocks, the stock market offers several opportunities to create wealth. However, we at Financial Education believe that the most important aspect of investing is the research and due diligence done before investing in a company.

Researching and analyzing every stock before you invest your hard-earned money in it is the best way to protect your capital and ensure it appreciates over time. With proper research and analysis, you can find well-performing companies that can perform even better in the future and help you create wealth. While most people generally assume researching and fundamentally analyzing stocks might be a challenging task, in reality, it can be a great experience and provide you valuable information and insights on the company, which in turn can help you make better investment decisions. When it comes to investing in tech stocks, Facebook is probably the first company that might come to an investor’s mind.

With Facebook being part of the Big Five companies in the U.S. information technology sector, along with tech giants; Google, Amazon, Apple and Microsoft, Facebook is one of the world’s most valuable companies in the world. Reaching a market capitalization of almost $1 trillion, this tech giant has over 2.8 billion monthly active users on its social media platform as of March 2021. However, before you decide to invest in Facebook’s stock, it is crucial to understand the company and its stock from the basics. In this article, we shall explore Facebook and its stock in detail to give you a better picture of this organization so that you can make better investment decisions. Let’s get started!

Understanding The Basics of FACEBOOK INC

Before we discuss any further, let us understand Facebook Inc., from the basics. Facebook Inc., is an American multinational company based in Menlo Park, California. Founded by Mark Zuckerberg and his fellow roommates and students at Harvard in 2004, Facebook was originally known as TheFacebook.com, which is today’s Facebook. Membership to Facebook was initially limited to Harvard students only, however, they gradually expanded their user base to North American Universities, and since 2006, anyone over the age of 13 can open a Facebook account. Apart from their social networking platform, Facebook also offers other services that include: Facebook Messenger, Facebook Watch & Portal. The company has also acquired WhatsApp, Instagram, Oculus and has a 9.99% stake in Reliance Jio.

Facebook has over 2.8 billion active monthly users as of 2021 and ranks seventh in global internet usage. Facebook was also the most downloaded mobile app of the 2010s. Facebook’s initial public offering came on May 17, 2012, at a share price of US$38. The company was valued at $104 billion, the largest valuation to that date. The IPO raised $16 billion, the third-largest in U.S. history, after Visa Inc. in 2008 and AT&T Wireless in 2000. Based on its 2012 income of $5 billion, Facebook joined the Fortune 500 list for the first time in May 2013, ranked 462. The shares set a first-day record for having a trading volume of an IPO with 460 million shares. We at Financial Education believe that Facebook has seen tremendous growth over the past few years and as of July 2021, Facebook’s shares are trading at levels of $300 to $350.

Facebook has had its fair share of ups and downs over the past few years. But ever since its IPO in May 2012, Facebook has remained a high-profile stock that has been drawing investor interest constantly. Being a key member of the FAANG group of the technology industry, which also includes Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Alphabet (GOOG), Facebook is held by both institutional and retail investors. Over the past years, Facebook’s shares have been in a slow but constant uptrend, providing value and growth to its shareholders. Despite the 2020 Covid-19 pandemic, Facebook’s shares have witnessed a strong comeback and are reaching all-time high levels with a strong recovery.

However, despite being one of the most valuable companies in the world, Facebook has experienced severe backlash on several occasions. The subject of numerous controversies, Facebook has often been criticized over issues such as user privacy as with the Cambridge Analytical data scandal, political manipulation with the 2016 U.S. elections, mass surveillance, psychological effects such as addiction and low self-esteem, and content such as fake news, conspiracy theories, copyright infringement, and hate speech. Commentators have accused Facebook of willingly facilitating the spread of such content, as well as exaggerating its number of users to appeal to advertisers. But despite all these problems, Facebook and its shares have been growing and attracting investor interest.

Facebook’s Current Share Price

As of July 2021, Facebook’s share (Ticker: FB) is trading in between levels of $330 to $350. Since the Covid-19 market crash in March 2020, Facebook has had a strong recovery and is in a powerful uptrend. The stock was in consolidation between July 2020 to Feb 2021. Since March 2021, Facebook has been in a constant uptrend and has reached all-time high levels of $360. The strong bullishness in the stock suggests that the market sentiment for Facebook is positive and investors have faith in the company and its future growth. With almost 2.8 billion active monthly users, Facebook has a strong user base and is about to reach a $1 trillion market capitalization. This makes Facebook one of the most valuable companies in the world.

Facebook shares have witnessed an increase of 14.18% in the last quarter and have gained over 44% in the last year alone. On the contrary, the S&P 500 only moved 8% in the last quarter. According to Financial Education, the primary reason behind the strong bullishness in Facebook’s stock is the increased usage of social media during the Coivd-19 pandemic as lockdowns were imposed around the world and people were left with limited means of entertainment. This increased the number of active users of Facebook by a huge margin and also increased the demand for its advertising and marketing services, therefore helped in fueling the rally amongst other factors.

From having a market cap of around $60 billion in 2012 to reaching a $1 trillion market cap in 2021, Facebook has seen tremendous growth in the past few years largely due to the ever-increasing presence of social medial in our everyday lives. Facebook dominates a large part of the social media industry with their recent acquisitions of platforms like Instagram, WhatsApp, Oculus, Giphy, and Mapillary, and a 9.99% stake in Reliance Jio.

Trend Analysis

As seen in the weekly chart of Facebook (FB) below, the stock witnessed a correction during the 2020 Covid-19 pandemic, but since then, the stock has relatively been bullish and is in a constant uptrend. The stock is also trading above the 200-day moving average and last took support from the 200MA in March 2020. This suggests a strong bullishness in the stock and it can continue its growth from current levels of $350 to reaching all-time high levels of $400.

The stock can be seen consolidating from June 2020 to Feb 2021. But since then, the stock has been in a constant uptrend with minor pullbacks. While the stock is currently in a strong uptrend, one should wait for a proper pullback or corrective move to enter and create a position/investment in Facebook. According to the founder of Financial Education, Jeremy Lefebvre, analyzing a stock’s short-term price activity is a great way to gauge if the stock has momentum and has the potential to go further, as it indicates the current interest levels of buyers and sellers in the stock. By looking at Facebook’s recent stock movement, it can be said that the stock has the potential to go further and reach all-time high levels in the coming months.

Reason Behind FACEBOOK’s Bull Run

Facebook’s stock has been in a consistent uptrend for quite some time. With its shares witnessing an increase of over 14% in the last quarter alone, market participants have been bullish on FB. The major reason for the consistent uptrend in Facebook can be linked to its massive 2.8 billion active users and an increase in revenue through multiple streams, including Instagram and WhatsApp as the Covid-19 pandemic created a huge increase in usage of social media and this helped Facebook get a massive increase in both active users and revenue. Hitting all-time high levels of $350, the stock has witnessed a strong bullish momentum.

After facing a significant slowdown in its revenue growth last year as advertisers paused, reduced, or recalibrated their ad campaigns during peak lockdowns and sheltering last year, the social network returned to strong momentum as it closed out 2020. Fourth-quarter revenue rose 33% year over year — an acceleration from 11% growth in Q2 and 22% growth in Q3. Nonetheless, the pandemic caused a huge increase in Facebook’s active user base and the company ended 2020 with $86 billion in revenue, up 22% year over year. Net profit surged 58% to $29 billion. This increase in revenue is primarily due to the high demand for Facebook’s an advertising and marketing services.

Reasons Why Facebook Might Continue to Grow

Being one of the most valuable companies in the world, Facebook has dominance over the social media industry with its social networking platforms including Instagram and WhatsApp. With a massive active user base of over 2.8 billion people, we at Financial Education believe that Facebook has a lot of potential in the coming future. Its stock can prove to be a great long-term investment as the stock is in a strong and consistent growth phase with the potential to grow further. Going forward, Facebook and its stock might continue to resume the uptrend it has been in for quite some time. Here are a few of the reasons why Facebook might continue to grow –

Strong Fundamentals 

The first reason why Facebook might continue to grow is that the fundamentals for the company remain strong. Despite the pandemic and the Covid -19 market crash, the stock and company witnessed a strong comeback from its low levels in March 2020. Apart from the volatility in the stock due to economic and market conditions, Facebook has continued to grow. While other businesses were shut down or severely affected by the pandemic, online processes witnessed a huge increase in demand.

Among these, e-commerce sales witnessed a huge increase in demand. Therefore, when e-commerce sales are booming, so will advertising services. This is a trend that will continue in the coming future as Facebook is a major player in the online advertising and marketing industry. With its fundamentals set in a strong domain that will continue to grow in the coming future, Facebook can be a good investment.

Growth & Expansion 

With Facebook amassing over 2.8 billion monthly active users, it dominates a large part of the social media industry. Additionally, with its acquisitions of Instagram and WhatsApp, Facebook is on its way to expand its outreach and fuel growth. Over the next few years, Facebook is expected to take bigger steps toward monetizing its other properties, such as Instagram and WhatsApp. This will unlock a new source of revenue for the company and sustain its growth trajectory.

Apart from its social media platforms, Facebook is also working on its new ventures, which include its own e-commerce marketplace, virtual reality, and Facebook payments. These new ventures could drastically widen Facebook’s market and help sustain its growth over the long run. Nonetheless, the pandemic caused a huge increase in Facebook’s active user base and the company ended 2020 with $86 billion in revenue, up 22% year over year. Net profit surged 58% to $29 billion. This suggests that the company might continue its uptrend in the coming future.

Conclusion

Facebook has barely scratched the surface of its potential. With a positive future outlook and serval growth possibilities in almost every sector that it operates in, Facebook is definitely on the rise. We hope that this article provided you with valuable information and a clearer picture of Facebook Inc. With all this information, you can make a better decision on whether you should invest in Facebook’s stock or not. 

While some may feel that Facebook’s stock is overvalued, the future for this company seems to be quite positive. However, before making any investment decisions, be sure to check the current market condition and other factors that might affect the value of a stock, as investments in the stock market are subject to market risk. If you liked this article, make sure to visit Jeremy Lefebvre’s YouTube channel “Financial Education” for more informative content! Happy investing!

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