Why Facebook Remains a Solid Buy

Facebook (FB) announced first quarter ended March 31, 2016 total revenue of $5.38 billion, up 52 percent year-over-year from $3.54 billion during the same period last year but, down 8 percent sequentially from $5.84 billion in fourth quarter of 2015.

Facebook declared first quarter of 2016 net income of $1.51 billion or $0.52 per diluted share, up 195 percent year-over-year from $512 million during the same period last year but down 3 percent sequentially from $1.56 billion in fourth quarter of 2015.

The global social networking company reported continued solid year-over-year growths in both its top and bottom lines primarily driven by significant expansion in daily and monthly active users during the quarter.

The attractive year-over-year top and bottom line growths of Facebook signifies notable increases in the number of Daily Active Users (DAUs) and Monthly Active Users (MAUs) which again is a result of the company’s continued commitment to enable more and more people to socially connect with each other and expand their community.

The sequential and year-over-year significant growths in Daily Active Users (DAUs) and Mobile Daily Active Users (Mobile DAUs) suggest a robust growth strategy of the company targeted towards delivering innovation while focusing on achieving its long-term objective of increasingly connecting people across the globe.

Strong growth in numbers  

The continued focus of Facebook on implementing superior innovation and increasingly connecting people across the globe is believed to make the social networking giant a truly global company, increasingly attracting the key investors to invest into the stock while reaping sustainable long-term returns.

The number of monthly active users (MAUs) and mobile monthly active users (Mobile MAUs) for Facebook both grew significantly on sequential and year-over-year basis, which signifies strength of the company’s innovative growth strategies targeted towards continuing to expand the already solid global user base.

Facebook’s average revenue per user declined somewhat sequentially for US & Canada, Europe, Asia-Pacific and the remaining world mainly due to the company utilizing a majority of the cash in strategic acquisitions to grow its products and services portfolio.
However, Facebook’s top line grew impressively year-over-year and across the globe as a result of continued newer growth efforts being implemented by the company to expand the active user base. Moving ahead, Facebook seems committed towards minimizing its non-core expenditures as a percentage of top line growth which is in line with the company’s strategy to grow free cash flows to be leveraged in performing planned acquisitions while delivering attractive shareholder returns in form of dividends and strategic share repurchases.

The notable increase in the total number of monthly active users along with continued commitment of Facebook towards minimizing its non-core expenditures is expected to drive significant and sustainable long-term company growth while offering attractive shareholder returns.

Strong product development    

Facebook has uniquely grown its quarterly capital investments for first quarter of 2016 to $1.13 billion, up 126 percent year-over-year from $502 million during the same period last year. Further, the social networking major has increased its annual capital investments for 2015 to $2.52 billion, up 38 percent from $1.83 billion of total capital investments made in 2014 which is impressively converging with the company’s continued commitment to expand free cash flows while delivering sustainable long-term investor returns.

Moreover, there seems significant upside potential for Facebook with the company continuing to remain a co-dominant player with Google, Inc. in worldwide digital advertising. The planned roll out of a live video streaming service on Facebook is increasingly gaining significant customer traction and could deliver lasting company growth. In addition, the strategic acquisition of a virtual reality (VR) headset-manufacturer in 2014 while uniquely launching the “Oculus Rift” headset recently is estimated to multiply Facebook’s top line growth several times and thus, to benefit the key stakeholders.

The strategic capital deployment techniques of Facebook is believed to deliver balanced company growth, improving its products and services portfolio while increasingly attracting new investors to hugely invest in the company and reap healthy long-term returns.


Overall, the investors are advised to “Buy” equity in Facebook, Inc. considering the company’s significant long-term growth prospects with PEG ratio of 0.95, depicting somewhat solid company growth and slightly better than the industry’s growth average of 0.77. Also, the quarterly revenue growth of 52.00% appears impressive and notably better than the industry’s average of only 20.00%.
Published on May 25, 2016
By Vinay Singh

Copyrighted 2020. Content published with author's permission.

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