Facebook Will Dictate the Digital Marketing Space and Here's Why

Just a few years ago, Facebook (FB) was being called a fad and compared to the likes of MySpace for not having dominating earnings power. Fast forward to now and Facebook (FB) is dominating the advertising market and will probably continue to do so.

Facebook’s latest quarterly results were terrific and the stock has responded accordingly as Facebook is up approximately 10% post-earnings. Apart from the better-than-expected results and strong guidance, what impressed me the most about Facebook’s conference call was the amount of businesses that were advertising with the company.

As per the latest reported quarter, Facebook now has 3 million businesses advertising on its platform, up 50% from the first three months of 2015.
Facebook’s strong growth obviously commands a strong valuation for the stock. However, as someone who has used Facebook’s ads, I think Facebook can easily grow into its current valuation.

The number of advertisers should keep on increasing as Facebook provides the cheapest and the best platform for small business to get digital exposure. Not only are Facebook ads cheaper, it also lets the advertiser target any specific audience by filtering their age, nationality, language and most importantly –interests. In addition,

What’s better is setting up an advertisement on Facebook is pretty easy and Facebook’s algorithm also gives a pre-estimate of the amount of people that will be viewing the ads. All in all, advertising with Facebook is very cheap and it is not surprising that it has become the go-to platform for small businesses looking to gain exposure.

Facebook is not done growing as with more people realizing the true potential of its ads, the number of advertisers should grow significantly as we move forward. In addition, even if the advertisers growth saturates in a couple of years, Facebook can still continue to churn out profits by increasing the prices.

Just like Netflix, Facebook can raise rates when it starts running out of growth options and investors can expect the stock to continue performing very nicely till then. Also, given the acumen of CEO Mark Zuckerberg, I can certainly say that Facebook will have branched out its revenue stream by the time its ad business saturates.

Facebook will probably continue dominating the digital marketing space, which is a very large market. Hence, I think investors should ignore Facebook’s current valuation and consider it a safe long term investment.

Published on May 20, 2016
By Prudent Investor

Copyrighted 2016. Content published with author's permission.

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