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In 2016 Will Facebook Stock Increase?

Michael Singer - Monday, January 25, 2016
 

In 2015, the stock of Facebook outperformed the NASDAQ by 5:1, and traded higher by 30 percent. Since the 2012 Facebook’s IPO, the stock of Facebook has more than doubled the NASDAQ performance, and thrived in mobile and advertising, and currently has a slew of fresh projects to push them forward. But, after this type of an excellent multi-year span, the question is if their gains are going to continue, or if stock in FB is going to have a setback in the year 2016.

Facebook Isn’t Cheap, Yet Cheaper Than You Might Think

The stock of Facebook currently is priced at around $107, and it supports a market capitalization of right under $300 billion. It makes FB amongst the most valuable businesses worldwide, more than Ford Motor Company or AT&T combined. As you think about it this way, there isn’t any way Facebook stock is able to rise higher, right?

The social media platform might not be selling millions of vehicles every year, or offering mobile service to over 100 million individuals, yet the social giant is an ad king, and with more than a billion active users it possesses the biggest network the globe has ever seen.

2016’s Biggest Investment Opportunities

Facebook, furthermore, is an extremely profitable businesses that has an operating margin more than 30 percent. Thereby, in spite of having little revenue that is relative to its market capitalization — Stocks of FB trades at 18.5 times its trailing 1-year revenue — Facebook trades at a mere 36.7 times 2016’s expected EPS.

As 36.7 times forward earnings might seem highly expensive, bear in mind that advertising juggernaut Alphabet constantly trades with a P/E ratio that is over 30. If Facebook stock, in other words, traded flat for around a year, and increase its EPS by 32 percent to $2.86 in 2016, it’d be trading at close to the same earnings multiple as GOOGL is right now.

FB stock, in other words, might appear extremely costly due to its market capitalization, yet based upon its growth outlook and earnings expectations, there may actually be an upside for FB.

Shocking Catalysts to be on the Lookout for in 2016

FB has expectations to grow EPS by 32 percent in 2016, yet also is going to increase revenue by almost 38 percent. It’d represent a small slowdown from the 40 percent growth of revenue in 2015.

Furthermore, those figures imply that analysts are expecting a continuation of the social media’s present business model that involves ads sold to both mobile and desktop users for the Instagram and Facebook platforms. But, there are some catalysts which might not be figured within Wall Street’s model.

A single catalyst includes the monetization of mobile messaging services Facebook Messenger and WhatsApp. Facebook launched the Messenger platform in 2015 that permits businesses to communicate with users of its app. There has been lots of speculation about exactly how Facebook is going to monetize its 700 million users of Messenger, as well as its almost a billion users of WhatsApp.

In the past, I’ve suggested that Facebook might launch a payment service such as Western Union or PayPal to develop billions of dollars on an annual basis. But, it appears as if Facebook is more set upon something referred to as “click to message” advertisements, in which it permits advertisers and businesses to create advertisements for specific services and products then send them to users of Messenger.

Regardless, I’ve often suggested that Facebook might earn billions of dollars a year once advertisements roll out to WhatsApp and Messenger, therefore developing revenue from a combined users of 1.5 billion who are not seeing advertisements on either platform.

Besides the untapped potential for WhatsApp and Messenger, there’s video advertising upon Facebook. At the start of November, there were eight billion day-to-day video views upon Facebook, and I figure that it might be a ten billion market opportunity for Facebook.

Facebook Stock Catalysts Have to Materialize

These are a couple of enormous opportunities which analysts likely are figuring into their predicted figures for 2016. Therefore, whether Facebook trades higher in the year 2016 is going to be determined by its capability of beating analyst expectations, and that is able to happen depending upon what moves it’ll make with the WhatsApp and Messenger platforms, PayPal-like payment services, click to message, monetization of the content it’s hosting, as well as its virtual reality initiatives.

Here’s the bottom line: with so many month-to-month active users, there will include lots of ways that Facebook has the ability to make money from its platform. If Facebook is fast to pursue these opportunities, stock of Facebook will soar higher within 2016. If not, it likely still will rise higher, because of favorable investor sentiment, yet only slightly higher. Either way, stock of Facebook is well-priced for even more gains within 2016.

 

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