Facebook Inc (FB) Stock Is a Keeper Through the Earnings Report

It’s been a huge run for the stock, and I can see why some investors might think it’s near an end. As Chris Tyler pointed out earlier this month, the enthusiasm for so-called ‘FANG stocks’ has dimmed somewhat in the second half of the year. The FB stock price has risen over 50% so far this year, adding roughly $170 billion in market capitalization in less than ten months, nearly as much as the entire market cap of Intel Corporation (NASDAQ:INTC).

But I’ve been bullish on FB stock for some time now. I remain so even with the FB stock price today at $175. I argued in August that Facebook isn’t the stock to worry about in this market, and I still think that’s the case. Nor do I think the discussion about ‘fake news’ and other issues has any impact on the FB stock price. Facebook is dominant in social media, it’s increasing ad rates and it’s growing users, revenue, and earnings steadily. With a still-reasonable valuation, there’s more upside ahead for Facebook stock.

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Moving Beyond Facebook

Facebook has become so ubiquitous that its growth might be taken for granted, that would be a mistake. Revenue rose a whopping 47% in the second quarter. Earnings per share increased 69%. Daily active users were 1.32 billion—nearly 20% of the world’s entire population—and somehow still rose 17% year-over-year. Facebook added nearly 200 million DAUs over those twelve months which is more than the entire total at Snap Inc (NYSE:SNAP).

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The biggest risk to Facebook stock is maintaining that dominance. There have been reports that younger users are defecting to Snapchat and other problems. But those reports go back to at least early 2014 and they’ve done nothing to impact the FB stock price today. Third-party reports occasionally garner headlines but the sales and earnings numbers show just how dominant Facebook is.

What’s intriguing about FB stock at the moment, however, is the opportunity beyond the namesake platform. Instagram Stories has cleared 250 million DAUs, with its user base now larger and faster-growing than that of Snapchat. Facebook still hasn’t really monetized either that platform or its WhatsApp property.

The company continues to move into video and virtual reality. Bret Kenwell last week discussed the company’s opportunities in those spaces, and they’re attractive to say the least. Facebook is becoming a more diversified player, with an offering that goes beyond just photos and likes. The company is now an embedded part of the media landscape for better or for worse. And it’s hard to see, at this point, how that changes. There are no more competitors to the throne, and no one to stand in the way of Facebook’s growth.

The FB Stock Price Today Isn’t Expensive

Facebook stock simply isn’t that expensive. Backing out the company’s sizeable cash balance, FB stock trades for about 30x 2017 EPS estimates. That’s with analysts expecting 47% growth. The company’s sheer size suggests that rate will slow – but analysts still project a 22% increase next year.

In this market, that looks like value, pure and simple. Low- to zero-growth companies like The Coca-Cola Co (NYSE:KO) and Procter & Gamble Co (NYSE:PG) merit 22-24x EPS multiples. An investor is much better off owning FB at 30x with 20%+ growth than another stock that’s ‘cheaper’ but is growing earnings slowly, if at all.