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3 Great Reasons to Buy Facebook

Daniel B. Kline, The Motley Fool

To say Facebook (NASDAQ: FB) stock got hammered when the company released its second-quarter results on July 25 would be a bit like saying the Cleveland Browns have had a rough couple of years. Both are true, but they don't really convey just how badly things went.

Cleveland, for example, has won one game in the past two years -- that's historic ineptitude. The social media leader, meanwhile, saw its stock drop by 20%, while its ad revenue grew by 42%; that number was below what analysts expected.

The difference between the Browns and Facebook is that the football team has actually been bad. The social media company just wasn't quite as good as it has been historically.

To continue the sports analogy, what investors did to Facebook would be like fans telling Lebron James he stinks because he lost in the NBA finals. Facebook had a slightly off quarter, but it's only "bad" when you judge it against the company's long-term success. A slight miss -- $13.04 billion in ad revenue compared to analyst expectations of $13.34 billion, according to an article by my Motley Fool colleague Danny Vena -- does not change Facebook's long-term trajectory.

A Facebook sign shows the thumbs up like symbol.

Not everyone liked Facebook's second-quarter earnings report. Image source: Facebook.

1. Facebook owns mobile

There were once questions about Facebook's ability to monetize mobile users. It's fair to say those questions have been answered: Of the company's $13.04 billion in ad revenue during the second quarter, 91% of it came from mobile users. That's up from 87% in the same period a year ago.

The mobile world is still growing, but Facebook has shown that it clearly understands how to sell ads in that market. Mobile revenue was up 50% year-over-year, and that's an impressive number even if the overall ad sales number disappointed.

2. User growth was strong

Despite the fact that Facebook has been embroiled in scandals over data privacy, users continue to visit. Daily active users rose to 1.47 billion in June, an 11% increase over the same month in 2017. Monthly active users also climbed by 11%, to 2.23 billion.

The company also added a new metric -- "family-wide audience," which came in at 2.5 billion -- to show monthly users across all its platforms. CFO Dave Wehner explained how the new measure works during the Q2 earnings call:

This is our best estimate of our de-duplicated audience across Facebook, Instagram, Messenger, and Whatsapp," he said. "We believe this number better reflects the size of our community and the fact that many people are using more than one of these services.

3. The company sees the future

Young people may not use Facebook as much as their older relatives, but they are using Instagram. The social media company has its bases covered through its multiple platforms, and has spent heavily on developing the next big thing.

"Beyond apps and looking at the next ten years, we're making a lot of progress with virtual reality," said CEO Mark Zuckerberg during the earnings call. "Our goal is to create that feeling of presence like you're right there with people you care about even if you might be halfway around the world, and [virtual reality headset] Oculus Go is off to a good start."

Beware quick reactions

Facebook's growth may slow at times. That's partly because the company has grown so fast and reached such a large audience. The company will benefit from the upcoming mid-term elections, as well as a two-year run-up to the 2020 presidential campaign, as advertisers spend more and users exchange information and opinions on its platform.

This is a company that's being held to an impossible standard, one that it nonetheless usually meets.

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Daniel B. Kline owns shares of Facebook. The Motley Fool owns shares of and recommends Facebook. The Motley Fool has a disclosure policy.