Facebook (FB) shares are bounding higher this morning after the company posted its fifth straight better-than-expected quarter. The metrics were beyond reproach. Revenues grew 61%, earnings more than doubled. You want "user engagement?" How about this: 829 million people used Facebook every day last quarter. That's 14% of the world. Even if you back out people who have multiple accounts dedicated to catfishing and their dog's inner monologue that's just amazing.
I'm long Facebook shares. Like most people I tend to be biased towards kids, puppies and investments that make me money so you can take all this with a grain of salt. That having been said, you very, very rarely see companies as big as this grow this fast. Two years ago it wasn't clear Facebook would ever make money on mobile ads. Right now it has 17.7% of the market and that's going to grow to 22% this year. Say what you will about mobile ads, I personally despise them, but the market is huge and insanely lucrative.
Facebook has operating margins of 48%. The company has become a cash machine. Between that and the lofty share price, that gives Sheryl Sandberg and Sir Hoodie (Mark Zuckerberg) virtually unlimited resources to invest how they see fit.
That last part is key. There are a small handful of stocks in the tech world that have core businesses spinning off enough cash to allow the companies to do almost anything they want. That's how being a growth company works. You build a root engine then build up other opportunities around it. CEOs at these organizations have what amounts unlimited access to cash at zero cost. You can say that's a function of the bubble and maybe it is but my personal theory of investing is this: If you give geniuses enough capital they'll build a pretty good business.
Facebook has joined the very limited number of companies with this set-up. They are in the Pantheon with Google (GOOGL), Microsoft (MSFT) under Nadella and of course Apple (AAPL). In fact, Facebook's set up ad growth rate today looks very much like what Apple created a decade ago when iTunes fueled the revolution. That's not a prediction but it's where things stand today and it's why Facebook shares are going to open at new all-time highs.
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