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Is Facebook Inc (FB) Stock Really as Strong as We Think?

Dana Blankenhorn

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

Since the start of the year, the big tech stock that has done best is Facebook Inc (NASDAQ:FB), now up by 38%. Over the last month, as the big tech stocks rolled over, the one that has rolled over least is FB stock.

Is Facebook Inc (FB) Stock Really as Strong as We Think?

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Why has Facebook stock stood so tall, and remained so strong, in the face of selling pressure on big tech?

One reason is growth. Facebook revenue for the March quarter was up 48% over the previous March, and profit margins grew, with 38% of the latest quarter’s $8.03 billion reaching the net income line. FB stock still has no debt, and operating cash flow continues to go up like a rocket, hitting $16 billion last year.

Facebook continues to show no debt and it now has 2 billion users. 

But there is more to the story than that.

FB Stock and the Global Time Suck

Facebook has become a global time suck, averaging about 50 minutes per user per day. The only site that compares is Alphabet Inc’s (NASDAQ:GOOG, NASDAQ:GOOGL) YouTube and Facebook’s wider variety of applications means it gets more advertising opportunities on that time.

Facebook is a walled garden of content, most of which costs it nothing to make, which is why 36 of its 44 analysts have it on their buy lists, and one has it lower than a hold. Earnings are expected to hit almost $6 per share next year, a forward price-to-earnings multiple of just 25 at the current price.

FB’s sheer size — its market cap is now $437 billion — means that as more ways are found to spend time online, Facebook can easily buy them. Not all its 62 acquisitions have been hits, but two of them — Instagram and Whatsapp — have been monstrous successes.

One-third of FB’s traffic now comes from Asia, and it is growing at over 700% in Africa. It is still growing and it still has room to grow.

What could possibly go wrong?

FB: The Ugly Americans

Facebook isn’t available everywhere. It still isn’t in the world’s most populous country, China. China has crafted its own analogs for all major services, and those that ape Facebook, like Weibo Corp (ADR) (NASDAQ:WB), are doing better for investors than Facebook itself.

Chinese companies like Weibo are subject to sudden shutdowns, but this seems to just make them more agile, more willing to jump through hoops Facebook can’t.



FB does not yet face a threat to U.S. operations, but the Trump Administration is not its friend, restricting its ability to bring in talent. Zuckerberg has tried touring flyover country, bending to Republicans as readily as to China’s leaders, but as the company continues to grow, it is also seen as a political threat to regimes worldwide, and it is facing increasing resistance.

Facebook’s global cloud footprint is not as large as it seems, with just four data centers operating and three more under construction. Its first Asian data center, in Taiwan, is still on the drawing board, and it is operating throughout Asia through third parties. 

No Slam Dunk for Facebook Stock

The point today is not to disparage Facebook stock, but simply to point out that even this company faces challenges.

As the internet grows more politically charged, not just in Asia but everywhere, FB stock is going to face more demands from governments that it censor its users. Its political power, even if gained unwittingly, is real, and maintaining its hold on that power, and the attention of its audience, is far from guaranteed.

We know what Google, Amazon.com, Inc. (NASDAQ:AMZN)  Apple Inc. (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT) provide: tools for doing business. Facebook remains an entertainment company, its commodity being user time. The world can live without it, and Facebook knows that. But investors need to understand that, too, before paying 38 times earnings for it and expecting a return.

Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time,  available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in FB, AMZN and MSFT.

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