Facebook Stock Prediction (NASDAQ: FB): Facebook’s Growth Story Is Still Intact

Facebook Stock Prediction

motek 1The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology  – Senior Analyst at I Know First

Summary:

  • Yes, the growth story of Facebook is going to slow down. Politics and privacy issues weakened the momentum of its advertising business model.
  • All these noise will eventually quiet down and Facebook will again be making tons of money from hyper-targeted ads to its 2 billion users.
  • Facebook making lip service that its restricting third-party access to its users’ data is temporary apology. That’s just to appease politicians and government authorities.
  • Facebook already has a massive database of its 2 billion users. It’s enough fuel to sustain Facebook’s annual advertising revenue.
  • I therefore rate FB as a hold. This rating is contrary to the pessimistic algorithmic forecasts for FB.

Ignore the current noise/outrage over Facebook’s (FB) ineptitude in protecting its users from devious personal data collectors like Cambridge Analytica. Most users knew that signing-up and sharing their lives/online habits on Facebook is open to third-party intrusion. It is also given that personal data gathered on the platform is in exchange for the free services/platforms that Facebook provides.

In spite of the expected slowdown in advertising sales (due to Facebook’s new restrictions on third-party access to user data), I still rate FB as a hold. Facebook and its partner marketers/advertisers have already gathered enough personal data library. Going forward, Facebook’s advertising revenue stream will slow down but it can still post double-digit annual growth rate.

Facebook has constructed a persistent database of its more than 2 billion global users. This gold mine of information can help Facebook maintain its $20 average advertising revenue per user.

(Source: Statista)

I don’t expect Facebook to achieve 40% Year-over-Year growth in advertising revenue this year. However, my fearless forecast is that Facebook can still rake in $45 billion in advertising sales in FY 2018. Sad but true, the non-existence of other social networks gives advertisers no choice but to place ads/marketing campaigns on Facebook, Messenger, and Instagram.

(Source: Statista)

My projection is Facebook will earn $45 billion from ads this year, $51 billion by 2019, and $55 billion by 2020. That guesstimate already took into account that advertisers/marketers will be more prudent in their social-centric ad placements.

Facebook Can Outgrow Its Advertising Business Focus

Let us also never forget that Facebook’s substantial cash reserves can help it quickly diversify its business. Facebook has $41.7 billion in cash & short-term investments. Its free cash flow is also $17.48 billion – Facebook can easily borrow more money for expansion purposes

Facebook is already building its own chip design team. Facebook wants its custom in-house processors for cloud computing and Artificial Intelligence-enhanced consumer devices. Having proven itself capable of managing 2 billion people’s accounts on web/mobile platforms, Facebook knows how to do scalable cloud computing infrastructure.

The global cloud computing infrastructure service is now a $52 billion/year expansion opportunity for Facebook.

In other words, Facebook can compete against Amazon Web Services (AWS), Google (GOOG) Cloud, and Microsoft (MSFT) Azure. While these cloud computing leaders rely on other firms to supply it with server processors, Facebook wants to make its own cloud computing and Artificial Intelligence platform processors.

Facebook Workplace is also an enterprise software-as-a-service [SaaS] and collaboration solutions platform. Workplace could eventually threaten Microsoft and Cisco (CSCO) in SaaS and cloud collaboration services. The $3 per user/month dirt-cheap fees of Workplace is why 30,000 business organizations have signed-up.

(Source: Facebook)

Stay Long FB, DCF Valuation Says It Has Obvious Upside Potential

My 5-year DCF Revenue Exit model gives FB a fair valuation of $175. I used a Discount Rate ranging from 11% to 10%. My conservative DCF valuation is already inclusive of weaker advertising revenue growth. In reality, Facebook’s total annual revenue could actually grow faster than my low Y/Y estimates for 2019 to 2022.

 

(Source: Finbox.io)

Furthermore, the recent dip in FB’s price makes it undervalued when compared to its industry and sector peers. Facebook has grossly outperformed its peers based on annual revenue and profit growth trends. Look at the charts below. Facebook’s 5-year revenue CAGR is 51.5%. This is 4x higher than the average 12.9% CAGR of its industry peers.

(Source: Finbox.io)

Conclusion

Facebook is still a momentum growth stock in my book. The Cambridge Analytica scandal will only make Facebook stronger. Facebook’s promises of stricter data gathering will only endear it more to its 2 billion users. Advertising pays for the internet. Unless people starts paying $10/month fee to use ads-free Facebook, Messenger, and Instagram, they will remain marketable products inside’s Facebook’s ad-supported platform.

My hold rating for FB is not supported by I Know First. FB has slightly bearish algorithmic market trend forecasts.

Past I Know First Forecast Success with FB

Facebook Stock Forecast

I Know First has made accurate predictions on FB in the past, such as its 1 year bullish article published on April 26, 2017. In the article, we discussed Facebook improving its fundamental financial indicators and emphasizing increasing importance in mobile advertising services. . Since the article’s release, Facebook shares have increased by 13.51% in line with the I Know First algorithm’s forecast. See chart below.

This bullish forecast for FB was sent to I Know First subscribers on April 26, 2017.

To subscribe today click here.

I Know First Algorithm Heatmap Explanation

The sign of the signal tells in which direction the asset price is expected to go (positive = to go up = Long, negative = to drop = Short position), the signal strength is related to the magnitude of the expected return and is used for ranking purposes of the investment opportunities.

Predictability is the actual fitness function being optimized every day, and can be simplified explained as the correlation based quality measure of the signal. This is a unique indicator of the I Know First algorithm. This allows users to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above 0 in order to fill confident about/trust the signal.

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