Last Updated on September 14, 2021
Facebook stock in 2021 might be one of the high-quality growth stock in the market that is still undervalued. With its market capitalisation of more than 1 trillion, Facebook absolutely crushed revenue and earnings estimates.
Daily active users easily cleared expectations. Revenues rose by their fastest rate since the second quarter of 2018.
Price of the Facebook stock in 2021 is also very good good. It currently trades at a trailing P/E ratio of 27.94 which is much lower than SP500’s 35.38.
To see if Facebook stock is undervalued, let’s see how Facebook is doing at the moment.
Advertising Makes 97% of Facebook’s Total Revenue
Facebook’s advertising revenue is generated by displaying ad products on Facebook, Instagram, Messenger, and third-party affiliated websites or mobile applications. Marketers pay for ad products either directly or through their relationships with advertising agencies or resellers, based on the number of impressions delivered or the number of actions, such as clicks, taken by users.
Other revenue makes less than 3%. Other revenue consists of revenue from the delivery of consumer hardware devices, net fees they receive from developers using their Payments infrastructure, and revenue from various other sources.
Fundamentals are Strong
|in millions $||2016||2017||2018||2019||2020|
|Free cash flow||11,617||17,483||15,359||20,660||23,028|
In the fiscal year ended December 30, 2021 revenue was $85,965 million, an increase of 21,6% year-over-year.
The increase in Facebook’s DAU (daily active users) is very interesting. They had incredible growth throughout 2020 where the increase from Facebook daily active users (DAUs) was 11% year-over-year. On average, they have 1.84 billion for December 2020. As of June 2021, Facebook has 1,91 billion daily active users on average.
As for EBITDA and net income, this is very healthy growth. Facebook undoubtedly has excellent financial indicators.
Based on Facebook’s second quarter earnings released in the beginning of the August, they show no sign of slow down. Revenue grew year-over-year by 56% and net income by more than 100%.
|In millions $||2020||2021|
Facebook Stock in 2021 Could Be a Good Opportunity for Value Investors
Facebook stock’s valuation is still very conservative. The company trades at 27 times earnings even though the analyst forecast calls for earnings per share to increase significantly.
The company recently crushed analyst estimates when it reported its second-quarter results. Revenue surged 56% year over year to $29 billion, leading to a 100,7% increase in net income.
Furthermore, Facebook handled a long list of challenges over the past few years and managed to keep growing and innovating.
There is a strong uptrend in daily active users who are using their products. I think these few reasons are very good reason to buy.
There Are Also Some Obstacles to Future Growth
Facebook expects that the company’s year-over-year revenue growth rates in the third and fourth quarters would decelerate significantly, given that Facebook is moving from a phase of strong growth to normal growth
CFO, Dave Wehner, also pointed out that Facebook would face increasing ad targeting difficulties from regulatory and platform changes, especially Apple’s privacy changes on iOS, in the third quarter.
As a result, analysts expect Facebook’s year-over-year revenue growth to decelerate to 37% in the third quarter $29.51 billion and 24% in the fourth quarter at the $27.28 billion. For the full year, they expect its revenue and earnings to both rise about 39%, to $119.27 billion.
Many Superinvestors Bought and Sold Facebook in Q2 2021
Facebook stock in 2021 many see as an opportunity in Q2 2021. Seth Klarman, William Von Mueffling, Bill Miller, Dodge & Cox all bought the Facebook stock last quarter.
However, there were more sales than buys from Superinvestors. 507,000 shares were sold by Chase Coleman, Stephen Mandel sold 676,650 shares, David Tepper 615 000 shares, John Armitage 546,000 shares. Also, there was Lee Ainslie, David Rolfe and fund Viking Global Investor who sold a smaller number of shares.
Should You Buy Facebook Stock in 2021?
Facebook’s mission is simple. They tend to give people the power to build community and bring the world closer together.
With this mission, Facebook has achieved amazing results. Facebook’s business is stable. It provided good cash flows, future growth and strong fundamentals. A further increase in daily active users is expected and there are currently no major obstacles in this business.
All things considered, I don’t think it’s too late to buy Facebook’s stock. The tech giant’s ability to weather its controversies and continue expanding is unbelievable. It look like Facebook will continue to dominate the global social networking market for the foreseeable future. However, this is not a financial advice, all decisions are yours alone.