As far as the best social media stocks in the world go, Facebook (FB) has to take the cake. This mega-cap tech giant has posted incredible numbers once again, and is now trading near its all-time high.
Nearly a one-trillion dollar company, Facebook’s size and scale has brought even the most cautious investors into its fold of late. The company’s moat is seemingly impenetrable to outside competitive forces. Moreover, each and every quarter, Facebook seemingly finds a new way to monetize some portion of its business. (See Facebook Stock Chart on TipRanks)
Investors are assessing whether this mega-cap stock still has value at these levels. Let’s dive into what the numbers suggest with this social media giant.
Impressive Quarterly Numbers
Facebook’s recent quarterly earnings blew away expectations, to put it mildly.
On the top line, the company reported sky-high revenue growth of 48% on a year-over-year basis. This revenue growth was driven by an increase in monthly active users to approximately 10 million higher than what was being priced into FB stock prior to earnings.
These stellar numbers were only outdone by the company’s bottom line performance. Facebook reported EPS growth of 93%, posting $3.30 in EPS vs. analyst consensus estimates of $2.32 per share. This company’s cash flow growth was similarly impressive, and resulted in analysts and investors quickly scrambling to re-do their models.
Indeed, these numbers are absolutely incredible, and speak to how successful Facebook has been at monetizing its existing MAU base. Should the company continue to see MAU growth on the horizon, investors may have to re-do their models again and again.
Facebook Is Not Risk-Free
Despite posting otherwise monster numbers, Facebook stock has felt the wrath of the markets as much as the next stock. In fact, during the recent inflation-driven interest rate spike, Facebook saw its stock price drop meaningfully.
Those who bought the dip are looking pretty smart right now.
That said, higher inflation and rising bond yields are a real risk to all mega-cap tech stocks. Facebook now represents a large-enough portion of many index funds to feel the pain of a collective rush to the exits. Should inflation turn out to be structural rather than transitory, as the Fed would like us to believe, investors can bet on a revaluation of growth stocks.
Additionally, investors need to remember that there’s still political pressure to regulate how big tech uses our data and respects our privacy. Facebook has been in the crosshairs of a number of privacy-related scandals in the past. While bullish investors may have short memories, these are risks that can resurface at any point in time.
The thing is, Facebook’s valuation relative to its mega cap tech peers is reasonable. In fact, according to my models and those of a number of analysts out there, Facebook’s potential upside is among the best of its large-cap brethren.
Accordingly, there may be a slightly higher margin of safety with this stock. However, as always, investors should remember to diversify their holdings across a basket of high-quality stocks.
What Analysts Are Saying About FB Stock
According to TipRanks’ analyst rating consensus, FB stock comes in as a Strong Buy. Out of 34 analyst ratings, there are 29 Buy recommendations, 4 Hold recommendations, and 1 Sell recommendation.
As for price targets, the average analyst Facebook price target is $387.03. Analyst price targets range from a low of $275.00 per share to a high of $460.00 per share.
Bottom Line
Facebook has built an otherwise-impressive ecosystem. The company continues to provide top and bottom line growth, with emphasis on the latter. As far as cash flow-generating machines go, Facebook is one of the most successful in the mega cap tech space.
Accordingly, it’s hard to bet against Facebook right now. This is a company with tremendous long-term growth potential from here. And with the winds seemingly in Facebook’s favor right now, investors may simply want to hang around for the ride.
Disclosure: Chris MacDonald held no position in any of the stocks mentioned in this article at the time of publication.
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.
