Facebook Stock Analysis: The Growth of Facebook

Tomer Solel is a  Financial Analyst at I Know First. He graduated from Cal Poly Pomona with a bachelor’s degree in applied mathematics. 

Facebook Stock Analysis 

Mark Zuckerberg is Changing the Philanthropic World Through Facebook

Summary

  • Facebook Stock AnalysisMark Zuckerberg has vowed to donate 99% of his Facebook shares to charity as announced shortly after his announced paternity leave.
  • Facebook expects to continue to have an impact from the US dollar, and is expected to continue to develop its AI.
  • Facebook had great results in the 3rd quarter of 2015 thanks to its mobile growth, and analysts believe that the Facebook stock could rise another 20% and reach up to $125 a share.
  • Analyst Recommendation
  • I know first will have predictions about the Facebook stock in the future.

Introduction

Facebook (NYSE:FB) is an online social network device that was launched by Mark Zuckerberg in 2004. Facebook officially opened in 2006 to anyone age 13 and up. Traffic to the site has increased enormously ever since. By 2010, there were 500 million Facebook users. June 2011 was the first month in which Facebook reached one trillion page views in one month. Most recently, Facebook doubled its number of daily video views from 4 billion to 8 billion, averaging 760 years of watch time per day. Over the years, Facebook kept developing, and it is still developing today. As of November, Facebook was amazingly worth over $300 billion, making it the 7th most valued company in the world. Looking at recent trend, we can expect Facebook stock to continue to go up. Recently, Zuckerberg announced that he would donate 99% of his Facebook shares, which is estimated to amount to $45 billion.

Mark Zuckerberg’s Huge Impact

With the expected birth of his daughter, Zuckerberg decided to take a paid two months parental leave. That decision, although might seem minor, is very important. Although, new parents on Facebook could have already taken a paid 4 months off with benefits, Zuckerberg set a different tone. He set the culture for taking time off at his own company, and that might set the stage for other companies. Even so, parental leave is not a reality for most Americans.  Shortly after his parental leave Facebook post, Zuckerberg wrote his first letter to his newborn daughter. In that letter, he declared that he would donate 99% of his shares. With Facebook being worth so much, Zuckerberg is expected to donate $45 billion throughout his lifetime. At this young age, Zuckerberg is putting a new spin on the concept of philanthropy. Unlike past generations, he is leading the young tycoons who are starting to spread their wealth at a young age. Still, Zuckerberg is being criticized for donating his money to the causes of advancing human potential and to promoting equality as opposed to donating it to charity. He will be donating his money to L.L.C., which stands for a limited liability company. This way, he can have more control over his donations, because an L.L.C. has fewer rules, and therefore it acts like more of a private investment as opposed to charitable organizations which work differently. Other Silicon Valley donors have already been using the L.L.C. form, but with this announcement, Zuckerberg is expected to make the L.L.C. form much more popular than it is now. Zuckerberg and his wife are entering unchartered waters since in the past their donations have yielded mixed results. However, this time Mark Zuckerberg pledging to donate so much money with his wife is going to have a huge impact on Facebook as well as other companies.

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(Source: cnbc.com: FactSet)

The USD Impact on Facebook

Having enjoyed a good year so far, Facebook expects to continue to be impacted from the US dollar. As of November 27, 2015, Facebook’s stock has increased by an astounding 36% this year. Overall in the past year, it has gone 41% to $4.5 billion with an ad revenue of 45%. But Facebook has been hampered by the strong US Dollar. That had a very unfavorable impact on Facebook. Over the past year, Facebook has lost $340 million due to changes in the US dollar, which amounts to about 8% overall. This unfavorable impact from the US dollar is expected to continue in the final quarter of 2015. But Facebook is not the only company that is affected by this, as Google (NYSE: GOOGL) and Amazon (NYSE: AMZN ) reported big losses as well due to it. Even with the setback, Facebook is managing to have an amazing year so far, surpassing expectations. Facebook is looking to improve using AI. Using their AI device, Big Sur, which includes eight GPU boards, each consuming only 300 watts of power. This is twice as fast as what the systems Facebook previously used for training AI software. For altruistic reasons, Facebook’s AI is now outsourced. In the future, Facebook will be innovated by AI.

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(Source: marketrealist.com)

Mobile Growth is a Big Reason to the Rise in Facebook Stock

After such a great 3rd quarter in 2015, we have no reason to believe that Facebook is about to slow down any time soon. Analysts believe that Facebook could continue its momentum and reach up to $125 per share, an additional rise of 20% on top of where it’s at right now. Facebook audience just keeps growing, and that leads to a lot more advertisements.  In addition, Facebook has also been able to bring down its expenses. In addition, Facebook experienced a great growth in the mobile aspect. Facebook reported a tremendous 72% growth this year in mobile devices up to $3.3 billion. It also experienced a 23% increase in active monthly mobile users. That raised the net profit by 11% to $896 million. As a result, mobile is now the most dominant platform for ads, with ads being the biggest source of income for Facebook. Now, mobile ad revenue stands at 75% of the total ad revenue. Ads and other factors of growing income lead us to believe that the Facebook stock will keep rising.

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(Source: usanews.com)

Analyst Recommendation

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(Source: NASDAQ)

This chart shows us that Facebook continues to be a strong buy. We have no reason to believe that the stock will lose its momentum any time soon. These analysts’ predictions of a buy or strong buy seem reasonable. This reinforces what we already believe, and that is that Facebook is a safe bet.

Conclusion

In conclusion, there are many aspects that are affecting the value of the Facebook Stock. Facebook is a relatively new stock, so here at I Know First we simply don’t have enough inputs for our algorithm to give an accurate prediction about the future of the Facebook stock. In the future, as we gather more data, our predictive algorithm will be able to forecast the Facebook stock.


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