Learning Resources
Behind the Stock
Behind the Stock

27 Jan 2021

Ep15 | Is Facebook (FB) A Strong Stock And Can It Still Grow?

BUSINESS MODEL
Facebook allows people from every corner of the world stay connected through their products which are:
Facebook, Instagram, Messenger, WhatsApp and Oculus.

How Facebook makes money

99% - advertising
Remaining - Sale of the “Oculus” VR products, fees from developers using the Payments infrastructure & various other sources

Facebook mainly generates through advertising by displaying ad products on Facebook, Instagram, Messenger, and third-party affiliated websites or mobile apps. Marketers, advertisers, and customers pay based on the number of impressions delivered or the number of actions, such as clicks, taken by users.

GROWTH POTENTIAL

  1. Facebook is ramping up their mobile and in-app shopping features including partnering
    with Shopify and other e-commerce software companies to help businesses set up their shops. This
    allows businesses to easily create an online store on Facebook and Instagram for free.
    WhatsApp is also introducing a new shopping cart feature that lets users order multiple items with a
    single message. Now it’s made much easier especially for small businesses on to sell their products
    via WhatsApp Business.
    The new feature, Facebook Pay, is also already available in selected countries
  2. Facebook invested USD 5.7 billion in India’s Jio Platform. India is the 2nd largest internet market
    after China & is rapidly embracing online payment and e-commerce.
  3. For the VR market, the original Oculus Quest was the top-selling VR headset in Q3 of 2020. Sales
    are expected to jump with the launch of the new Quest 2 with a target of 2 million shipments.
  4. Facebook is building a new video product which allows users to pay content creators or celebrities
    for the chance to interact with them during a live broadcast.

STRENGTH
Network effect

As of Q3 of 2020, Facebook has over 2.7 billion monthly active users. LinkedIn is only at 250 million
and Twitter at 330 million.

Facebook also dominates the social media landscape, owning 4 of the top 6 platforms with the most
active users worldwide.

Marketers, advertisers, businesses love Facebook because they have access to a large database.
With this advantage, Facebook has been able to monetize it and continue growing the company and
its products.

RISK

Regulatory risk

March 2018:
Facebook-Cambridge Analytica data scandal

Millions of Facebook users’ personal data were leaked and targeted for political advertising. Mark Zuckerberg was called before Congress.

April 2018: Facebook updated their privacy policy
2019: Facebook invested billions into safety and security on the company's platform to ensure data
protection, identifying harmful content and more.

December 2020: Federal Trade Commission & over 40 U.S. states sued Facebook
Facebook could be forced to sell WhatsApp and Instagram due to antitrust allegations, accused of
buying up rivals & keeping smaller competitors at bay.

Jan 2021: WhatsApp announced privacy policy change
The change of privacy policy on WhatsApp includes the sharing of personal data with Facebook. As a
result, millions of users switched to Telegram and Signal.

FINANCIAL
Facebook has a very strong and healthy financial standing
• Revenue and net income have been growing consistently over the past few years
• Debt to equity is low and manageable at only 0.095x
• Cash from operations and free cash flow from the business are also strong