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Facebook Will Continue to Excel

- By Naman Shukla

Over the past few years, Facebook Inc. (FB) has performed amazingly well and the strong growth story continues heading into 2017. In 2016, the stock surged approximately 10%, but it is already up 23% year to date. The stock hit a fresh all-time high last week and is currently trading around that level.

Facebook reported amazing fourth-quarter results in February. The social media giant detailed earnings per share of $1.41, beating estimates by 10 cents. Revenue came in at $8.81 billion, again surpassing estimates by $300 million.


Furthermore, that figure also represents a surge of more than 50% year over year. Despite its massive size, the social media giant has efficiently managed to grow its revenue by 50% on average over the past two years.

In addition, virtual reality is currently one of the hottest growth markets. According to a report from digi-capital.com, the VR market is projected to grow to $30 billion by the end of 2020.

In 2016, this market was governed by Sony (SNE), which attained 30% market share. The driving force behind Sony's incredible performance was its enormous base of over 50 million PlayStation 4 users and a comparatively lower price for its VR headset.

After Sony, Facebook managed to grasp the second-largest position with just 11% market share. This is not surprising considering the cost of Oculus Rift. Facebook, however, recently slashed the combined price of Oculus Rift and Touch by $200, making it available for $600.

All in all, Facebook may have made a wise decision by reducing the price of the bundle as it will help the company more effectively compete against rivals.

The only problem with Oculus Rift is that it needs a powerful, high-end PC to function, which will remain a significant barrier to its mainstream adoption. As a result, low-end VR devices such as Samsung's (005930.KS) Gear VR will likely endure gaining market share in the future.

In its most recent quarter, however, Facebook announced it has plans to bring social media experiences to VR with apps like Oculus Rooms for Gear VR, which will certainly help it gain popularity.

Conclusion

Facebook rewarded investors with healthy returns in 2016 and will likely continue to do so in the coming years. Although virtual reality is still in its infancy, it is projected to grow at a strong rate over the next few years. The social media giant is making large investments to produce VR content. Considering the positive outlook for the VR market, Facebook seems well positioned to benefit in the years ahead.

Although Facebook currently trades around a new all-time high, investors should continue holding the stock for substantial returns.

Disclosure: I don't hold a position in the stock mentioned in this article.

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This article first appeared on GuruFocus.