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Facebook Inc (FB) Trade Card™

Facebook Inc (FB)
154.17 -4.02 (-2.54%)
Sector: Information Technology
Published by Capital Market Laboratories on 2020-04-04

What does this rating mean?
3Mo: -26.1%   |   6Mo: -14.6%  |   12Mo: -12.4%

10DMA: $156.7  |  50DMA: $186.9  |  200DMA: $192.5
What does this rating mean?


➜ FB generates $1.4912 in revenue for every $1 in expense, which is quite high and above the sector average of $0.99.

Facebook may very well be in place to show the greatest growth of all mega cap technology firms and is easily innovating communications at a level not seen in nearly a century.

"One hates to be all breathless, but the ability for two people on opposite sides of the planet to feel like they are physically in the same room could represent one of the biggest changes in communications technology in years, maybe decades."

Facebook Proper: Facebook has more "customers" than any company has ever had -- topping 1 billion users in a single day and averaging 1.5 billion monthly active users. And friends, this is all without any access to China.

Facebook of course is not just the app / website Facebook, it is a company created and manicured by tech genius Mark Zuckerberg. As we walk through the wonderful things happening at Facebook, let us never forget, that much like Apple of yester-year, this company and its future sit squarely on its founder's back, with all of its weight. He is the difference maker. A bet on Facebook is a bet on Mark Zuckerberg. Period.

On Friday, October 23rd, the company announced that it has indexed 2 trillion posts, strengthening its search capabilities which is a direct competitive move to compete with Google's (Alphabet) core search business as well as Twitter's news product and 'Moments.' Vice President of Search, Tom Stocky said:

"With over 1.5 billion searches per day and over 2 trillion posts in our index, search is an important, long-term effort at Facebook."

Where is the Growth Going to Come From?
First, Facebook proper is growing revenue at nearly 50% a year. Here's the company's all-time revenue chart (TTM).

Second, Facebook is continuing on with a plan to launch solar based drones to hover over remote areas of planet Earth to provide Internet access. "Only" 37% of the world is on-line and Facebook has a plan to reach the unserved market. More on that in a bit.

That might sound crazy, foolish, useless and desperate. Or, it could sound like Mark Zuckerberg is going to crush doubters again. If he is able to connect a chunk of the remaining 5 billion people in the world, the stock could double in a matter of years and near half a trillion dollars.

Third, WhatsApp which is the second largest social media in the world at 900 million active users and that's a gain of 100 million MAUs since April and more than double its user base from just over two years ago (Source: The Motley Fool).

Fourth, the third largest social media and second largest messaging app in the world is none other than Facebook Messenger, which has over 700 million monthly active users.

Fifth, of course, there's Instagram and its 400 million users (of which 75% are from outside the US).

Sixth is Oculus, which I will discuss in detail, below.

While some are concerned about how WhatsApp can actually monetize its 900 million users, Instagram is making substantial progress on that front. According to Axiom Capital Management's Victor Anthony ads on Instagram just started and major brands like Wal-Mart (WMT), McDonald's (MCD), Toyota Motors(TM), Capital One Financial (COF) and Whole Foods (WFM) have become ad buyers.

"Based on reasonable assumptions of user growth and monetization of those users, we see Instagram generating only $102M in advertising revenues this year, ramping to $284M in 2016, and ramping to near $4B annually by 2020."
Source: Barron's.

That $4 billion estimate would represent about 30% of Facebook's revenue today. Tim Brugger of The Motley Fool estimates $700 million in revenue from Instagram in the next year which is wildly higher than the ~$300 million estimated by Axiom Capital.

WhatsApp and Connecting the World
This is where it gets crazy interesting and crazy bullish. First, we need to understand what this "WhatsApp" thing is, so here we go, quick and dirty:

WhatsApp is designed as a replacement for SMS (text messaging) and it's working. Because it's designed as a simple messaging app, WhatsApp works on a wider variety of phones than Messenger, including connected feature phones, which use slimmed-down versions of popular apps (Source: The Motley Fool).

Now, is the Facebook-led initiative to improve Internet access and mobile device usage in developing countries (like India). That's where the solar drones fit in. Here's how it works:

"Facebook partnered with wireless carriers and offers free access to certain apps without their usage counting toward data plans. That process, known as "zero rating" apps, encourages customers to use apps like Facebook and Messenger as much as possible."
Source: The Motley Fool

WhatsApp is not on that free list, but that's a yet. It's the largest messaging system in the world, and has a massive usage from developing countries, like India with 70 million. Now that WhatsApp is knocking on the door of 1 billion users, Mark Zuckerberg has pretty clearly stated, that there is a clear path to monetization. Here are two:

First, WhatsApp could introduce new paid features that would let businesses message consumers. That's a clear line of revenue.

Second, WhatsApp already charges nominal annual fee of $1 after the first free year. At a billion users, that's no joke. The one caveat here is that Facebook only charges users in North America and Europe -- so far it has left the underdeveloped countries out of the fee system.

In any case, it's rather obvious that there will be a substantial monetization plan, even if it has not been fully fleshed out yet.

Facebook Messenger
Keeping it rather brief, Messenger has evolved into a platform for peer-to-peer payments, apps, and perhaps most importantly, social games. Its payment app competes squarely with PayPal's Venmo. The Motley Fool does a bang up job on describing how FB Messenger can be monetized, here's a snippet:

"Facebook's long-term goal is for Messenger to evolve into a monolithic chat app like Tencent's WeChat (known as Weixin in China), which has 549 million active users. Last year, Tencent let retailers set up "mini shops" within the app and launched a "Game Center" for in-app installations of games. Last quarter, Tencent reported that gaming revenue from WeChat and its other chat platform, QQ, boosted its online gaming revenue by 28% annually to $2.15 billion."
Source: The Motley Fool

Keep in mind, if King Digital or Zynga release their games simultaneously in iOS, Android and Facebook's "mini-app" store, that's an immediate competitive stance by Facebook against Apple's app store. After all, if a game is purchased through FB, there's no need to download it (again) for your phone. That's big revenue from multi-billion dollar gaming companies.

I may have left the best for last. While Instagram, WhatsApp and Messenger each are at various stages of monetization, the 800-pound gorilla in the room is Oculus. The virtual reality hardware unit is supposed to ready for mass distribution in early 2016.

Oculus is the fully immersive 3D headset that Facebook purchased for $2 billion. Not only is Facebook aiming at changing the way gaming is experienced, but well beyond that, the firm has its sights set on the way we consume all media, especially movies and television. But the hardware isn't the crown jewel, its Facebook's app that goes with it.

Without going into too much detail, at E3 the public was exposed to the Facebook Oculus app inside the headset and as Dave Thier of Forbes tech said:

"It was the sense of being in the same virtual space as someone else.

[] One hates to be all breathless, but the ability for two people on opposite sides of the planet to feel like they are physically in the same room could represent one of the biggest changes in communications technology in years, maybe decades.

[] Add in things like cameras that can read and replicate facial expressions, avatars and more natural looking environments, and this is a technology whose consumer base looks increasingly like [all of] humanity." (Source: Forbes).

Benzinga published an article on Sep 11th, 2015 referencing Ross Sandler of Deutsche Bank:

"Sandler pointed out that the consumer version of Oculus is expected to begin shipping to consumers in the first quarter of 2016 and could sell 1.5 million units at an average price of $350 per device. As such, Facebook could see sales of $578 million which represents 3 percent of total revenue.

Sandler also added that it is likely Facebook could sell the devices at a 50 percent margin. While this would imply an incremental $250 million in COGS (cost of goods sold) to the company next year, it only represents 3 percent of its total 2015 COGS.

Looking past 2016, the analyst is estimating total Oculus revenue of $599 million in 2017, $751 million in 2018, $905 million in 2019 and $1.063 billion in 2020."
Source: Benzinga

With Oculus we will be connected at a level that until recently, was truly just a sci-fi movie gimmick. Now, it's going to be real and ready for mass market next year.

Facebook will power the Internet for the rest of the undeveloped world, then provide the populus with the apps that can run on the technology available to them.

The firm will radically change the way we communicate with our friends and families with Oculus, not even to mention gaming. When we combine Facebook proper with WhatsApp, Facebook Messenger, Instagram and the promise that is Oculus, Facebook could call more than half of the Earth's population a customer and that's while still being locked out of China.

Technicals   |   Support: 146.01   |   Resistance: 178.19   

Swing Death Cross Alert: The short-term 10 day MA is now below the 50 day MA.

FB has a one bull (lowest rated) technical rating because it's trading below the 10-day (short-term), 50-day (medium-term) and 200-day (long-term) moving averages.

Earnings Estimates
Earnings Date
Revenue (Mean)
Revenue (Median)
Last Quarter (Actual)
$21.08 billion

Fundamentals Rating Summary

Metric Current 1yr Ago 2yr Ago Direction
Revenue (TTM US$ Millions)Trending Higher 70,697 55,838 40,653 Trending Higher

Operating Margin (QTR)Falling 1.49 1.78 1.95 Falling

Net Income (TTM US$ Millions)Falling 18,485 22,112 15,934 Falling

Cash from Operations (TTM US$ Millions)Rising 36,314 29,274 24,216 Rising

Research and Development Expense/RevenueRising 0.184 0.169 0.150 Rising

Stock Returns and Chart

FB is down -26.1% over the last three months and down -14.6% over the last six months. The stock has returned -12.4% over the last year.

Before we dig into the fundamental trends that drive the rating, let's look at a two-year stock chart with regression channel and 10-day momentum (on the bottom).

Note: You can change time horizons by clicking the or buttons near the bottom of the chart. You can examine a one minute day trading chart by clicking the at the top left corner of the chart.

Click here to interact with this stock chart

Now let's examine the visualizations of the critical financial measures.

Enter Symbol

Revenue (TTM US$ Millions) 70,69755,83840,653Trending Higher

Revenue (TTM) is trending higher meaning that it has increased for at least five consecutive quarters (we can see the trend in the chart below the analysis).

Note that FB is growing revenue by 26.6% year-over-year. Any number over 20% has an added impact on the fundamental (star) rating.

What do all these numbers mean?
FB's fundamental rating benefited these results:
1. The one-year change was positive.
2. The one-year change was greater than +20% (an extra boost to the rating).
3. The two-year change was positive.
Finally, the up trend (consecutive quarters) in revenue benefited the fundamental (star) rating.

Let's look at Revenue (TTM US$ Millions) in the chart below.

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Enter Symbol

Operating Revenues/Operating Expense 1.491.781.95Falling

Operating Revenues/Operating Expense
Operating revenue over operating expense simply shows us how much revenue (in dollars) is generated for every dollar of expense. The ratio must be (at a minimum) above 1.0 in order for a company to turn an operating profit. For the latest quarter FB showed a ratio of 1.49.

What do all these numbers mean?
A year ago Operating Revenues/Operating Expense was 1.78. In the last year we can see operating margins are decreasing but are greater than 1.0 for the most recent period.

FB's fundamental rating was affected from the operating margin numbers in two ways:
1. The current value is above 1.0 (the firm generates an operating profit).
2. The one-year change was negative (lowers the rating a little bit).

Let's look at Operating Revenues/Operating Expense in the chart below with the total assets in the orange line.

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Net Income (TTM US$ Millions) 18,48522,11215,934Falling

Net Income (after tax profit) over the trailing twelve months (TTM) for FB is falling. For the most recent trailing-twelve-months (TTM) the company reported net income of $18,485 (million). That's a decrease in the most recent year from $22,112 (million) or a -16.40% change.

In our next chart we plot Net Income (TTM US$ Millions) in the blue bars and the quarterly results in the gold line. Note the falling bars from a year ago (four quarters ago).

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Cash from Operations (TTM US$ Millions) 36,31429,27424,216Rising

Cash from Operations (TTM US$ Millions) is a critical determinant of stock price since market cap is the present value of all future free cash flows. For FB the metric is falling (it was $29,274 million last year). For the most recent trailing-twelve-months the company reported Cash from Operations (TTM US$ Millions) of $36,314 million. That's an increase in the most recent year from $29,274 million or a 24.05% rise.

This cash metric is up $12,098 million from $24,216 million two-years ago.

For our next chart we plot Cash from Operations (TTM US$ Millions) in the blue bars through time. Note the falling bars from a year ago (four quarters ago).

Click Here to Interact With This Chart

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