Facebook Stock Outlook: Premier League, Athena Satellite And Other Expansions

  The article was written by Hieu Nguyen, a Financial Analyst at I Know First.

Facebook Stock Forecast

“The biggest risk is not taking any risk… In a world that changing really quickly, the only strategy that is guaranteed to fail is not taking risks” – Mark Zuckerberg

Summary:

    • Facebook keeps surprising investors with their financial results
    • It’s time for the expansion: new satellites, Premier League, and more
    • Premier League – Next move to the streaming industry
    • DCF model and I Know First algorithms agree in a long buy signal for FB

On Wednesday, July 25, Facebook, one of the tech giants will announce their Q2 2018 financial results. As a result, it will be a good time for us to have a look at the company outlook and consider to buy FB.

 

(Source: Wikimedia Commons)

Facebook keeps surprising investors with their financial results

It can be said that 2017 is the most successful year for Facebook in the financial perspective. Both the top line and the bottom line showed a remarkable growth. While the total sales keep increasing by 25%, the net income also grew by 56%. Thanks to the strong business growth, the company’s cash flow from operating activities also jumped up by 50%. The main reason for the strong financial results is the Asia-Pacific Business. The revenue in Asia-Pacific increased by 55% mainly from three countries India, Indonesia and Vietnam.

When we look at the business model of Facebook, there are three important numbers: Daily Active Users (DAUs), Monthly active users (MAUs), and Average Revenue per User (ARPU). In fact, all of the three number continues to grow over the last 2 years. Despite of the fact that the monthly active users in US&Canada, the biggest market, have reached to maturity, thanks to the growth in Asia-Picific and the Rest of the World, the total MAUs still raised by 14%. On the same hand, the revenue per active user also jumped up 9%.

Opposite with what we analyzed about Apple and Google, the Gross Profit Margin for Facebook is increasing. In our article for Google, we mentioned that the Gross Profit Margin of Google is declining because of the increase in competitions. One of the main competitor in digital marketing is actually Facebook. With the expansion of the social media, Facebook are eating up the market share of Google strengthen its position in advertising industry. In order to be conservative, I expected the GPM to stay stable in the next 5 years.

It’s time for the expansion: new satellites, Premier League, and more

Along side with the strong growth in financial strengths, Facebook are expanding to different cities all over the world. On Monday, Facebook just announced that it acquired 600,00 square feet of office in London in the move to double the office presence in the city. Last year, Facebook added 800 more jobs for the city. The acquisition has proved the willingness of Facebook to expand in Europe in general and in UK in particular. Besides that, the company also added a huge office in Chicago, which is expected to add at least 2,000 employees.

Moreover, Facebook also plans to approach new areas based on its strengths. The company just confirmed that it will launched a new internet satellite to improve the internet connection. Based on the email by Facebook to the Federal Communications Commission, the company said that it wanted to launch Athena, its own satellite in early 2019. On the other hand, Facebook also expand its business in streaming industry. Earlier this year, it introduced IGTV feature on Instagram. This feature allows users to watch long, vertical video from their following channel.

Premier League – Next move to the streaming industry

Earlier this month, Facebook has announced its media rights of Premier League broadcast in South-East Asia countries including Thailand, Vietnam, Cambodia, and Laos. Facebook has to pay $200 million to stream all of the 380 matches of Premier League. We considered this move to be smarter compared to the same actions by Amazon.

In fact, Premier League is the most-watched soccer league in the world. Throughout the whole seasons, there are 38 rounds with 10 matches per round. Premier League has round 4.7 billion viewers all over the world every year. The number of viewers in all channels still increases year over year. In the season 2016-2017, NBC has announced an increase of 2,000 viewers per match from 447 thousand to 449 thousand audiences. On the same hand, Premier League football clubs also focus their marketing strategies in the Asia Pacific.

As we mentioned above, Asia Pacific is also the main contribution for the growth of Facebook. Based on the company 10K, India, Indonesia, and Vietnam represented the key sources of growth. With the Premier League media rights, Facebook now can attract more users from all different ages. Premier League will take a part of advertising revenue of traditional TV commercials. As a result, not only the number of active users but the revenue per user may also increase. I also factor this deal into my model by estimating both the monthly active users and the average revenue by users to increase 20% per year.

DCF Valuation suggests it’s time to BUY Facebook 

Our 5-year DCF analysis arrives the target price of $314.89 for FB, 49.39% upside from the current price. DCF model was constructed based on 3 main factors: top line and bottom line forecast, capital expeditures, and WACC. 42% of the revenue comes from the US&Canada and this segment is expected to grow at 38% over the next 5 years. This growth rate is purely from the increase in revenue per user since the monthly active users has already matured. As I mentioned above, with the new media right with Premier League, I expected the monthly active users to grow at 25% while the average revenue continue to grow at more than 20%.

Conclusion

Facebook continued to strengthen its position as one of the top 5 Tech giants all over the world. The company has a strong business model and keep expanding. I expect Facebook to continue to grow not only in the Q2 2018, but further in the future. With the clever move to South-East Asia market, we truly believe that this sector will the major contribution for the company future. With DCF Valuation methods, I confirm the Buy Recommendation for FB..

Current I Know First Forecast for Facebook:

My recommendation is supported by the forecast of I Know First. On July 23rd , 2018, I Know First issued a forecast for AAPL with a strong 1-year bullish signal of 113.54 and a predictability of 0.3. In addition, the signal gets better over the time. The prediction totally agrees with the above arguments about the future of Apple.

 

Past I Know First Forecast Success with AAPL:

On September 15, 2016, I Know First published a premium article saying that it’s time to Buy Facebook’s Stock. I Know First has been bullish on Facebook’s stock on all of the three time horizons. We suggested that Facebook Watch service last month would boost the advertising revenue of 2017 $36 billion. In fact Facebook stock price jumped up by 26.91% outperforming the benchmark by almost 14%. I Know First algorithm successfully predicted the movement of the Facebook stock price over all three period of time

(Source: Yahoo Finance)

Current I Know First subscribers received this bullish AAPL forecast on September 15, 2017.

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