Nasdaq FB FaceBook

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Facebook, Inc. (FB) is somewhat of a polarizing stock amongst investors. The company behind Facebook, Instagram, WhatsApp, and Oculus VR, features one of the greatest track records amongst the mega-caps stocks when it comes to its growing financials. Simultaneously, however, the various ethical concerns regarding the company's privacy practices, including the Cambridge Analytica data scandal in 2019, have attached almost a "vice status" to Facebook. That results in the stock consistently trading at very humble valuation levels relative to its overall prospects.

An Ever-Growing Top & Bottom Line...

The majority of Facebook's revenues are the result of its user base (MAU or monthly active users) and the dollars the company can extract out of each user (ARPU or average revenue per user) through the display of ads. With both of these variables expanding consistently, the company features a five-year revenue CAGR of 36.44%.

In Facebook's latest earnings results (Q2), year-over-year growth of MAUs slowed down to 7%, falling below the double-digit threshold for the first time in its history. However, this is only reasonable considering that 2.9 billion people already use Facebook's family of apps every month. If anything, any growth in MAU is impressive at this point. Further, worldwide ARPU increased by 43.5% year-over-year to $10.12. This resulted in Facebook reaching a new all-time high quarterly revenue record of $29.08 billion.

Further, powered by the company's high-margin, scalable business model, net income margins expanded to 35.75% vs. 27.71% in the prior-year period. Hence, net income skyrocketed by 101% to $10.4 billion, or $3.61 on a per-share basis. (See Facebook stock charts on TipRanks)

...But the Valuation Remains Compressed

Facebook has a lengthy track record of driving robust user growth. It also has a strong history of higher ARPU, following advertisers' recognition of the value of Facebook's ads in driving sales (especially in the small-to-medium business space). Despite those positive factors, the stock has historically failed to attract appropriate valuation multiples.

Since 2015, the stock's forward P/E has never crossed the 35X multiple, despite the company boasting a five-year EPS CAGR of 43.1%. Currently, the stock trades at a forward P/E of 25.1, which hardly reflects the company's underlying growth. As indicated in the chart below, Facebook is also clearly the cheapest amongst its mega-cap peers, relative to its sales growth estimates and forward P/E.

CompanyFY2021 estimated sales growthForward P/EFacebook, Inc.38.70%22.50Apple Inc. (AAPL)33.40%26.14Alphabet Inc. (GOOGL)37.30%25.93Microsoft Corp. (MSFT)13.90%30.41Wall Street’s Take

Turning to Wall Street, Facebook has a Strong Buy consensus rating, based on 25 Buys, 2 Holds, and 1 Sell assigned in the past three months. At $421.70, the average Facebook price target implies an 17.34% upside potential.

Margin of Safety, and Future Prospects

Besides for Facebook's intriguing upside, the company's fortress balance sheet provides a great margin of safety to the stock's investment case. At the end of Q2, Facebook's cash and equivalents stood at $64 billion, while the company does not have a single cent of long-term debt on its balance sheet. Hence, Facebook has a heavy war chest to deploy, should attractive acquisition opportunities arise.

Further, the company's rock-solid cash position and growing free cash flow can be allocated towards stock buybacks, which should deliver excellent shareholder value, considering the stock's humble valuation. Finally, the company is making rapid progress in its VR (virtual reality) developments, with its recent "metaverse" introduction aiming to connect everyone in virtual reality environments. This is likely to unlock new revenue streams over time, contributing to Facebook's growth.

All points considered, Facebook is likely offering a compelling investment case, considering its growing financials, attractive valuation, and future growth prospects.

Disclosure: On the date of publication, Nikolaos Sismanis had a beneficial long position in the shares of Facebook through stock ownership.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.

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Facebook is partnering with an Indian online lending firm to help provide loans to small domestic businesses, its country head said on Friday, as part of a push to bring more businesses to advertise on its platform.

(RTTNews) - Social media network Facebook Inc (FB) announced that it is going to introduce its cryptocurrency wallet named Novi Digital Wallet. The wallet will be tied to the Diem Blockchain system.

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The Federal Trade Commission on Thursday filed an amended complaint in federal court to continue pursuing its claims against Facebook saying the online platform maintains monopoly power.

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There comes a time when a growth stock has to take a good look in the mirror and ask itself if it's time to start appealing to income investors, too. Facebook (NASDAQ: FB) is seemingly at that juncture.