Why I’m Holding onto my Facebook Shares — Not Talking About Losses, Just Gains
I woke up last Thursday with a kick‑in‑the‑butt news bite: Facebook shares slumped 6 % in a single session after the company’s 2019 Q4 earnings. That big hit was all about a jump in expenses and a few regulatory fines. Yet, after reevaluating my stance, I’m more upbeat than ever and still proudly holding my stake.
Why the Market’s a Bit Fidgety
Before I open on why I’m bullish, let’s outline why everyone else is cautious.
- Regulatory baggage – Facebook faced a US$5 billion FTC fine for a privacy lapse and an additional US$550 million for facial‑recognition data misuse. European regulators are also keeping a close eye.
- Spending spree – Those fines and the promise to keep the platform safe have spurred massive hiring. The cost is steep, but the company’s hiring spree is a direct response to these pressures.
- Growth slowdown – The social network enjoyed a 36 % annualized top‑line growth in the past three years, but that momentum has ticked down a notch. A few shareholders whose pockets got used to 30 %+ growth might feel a twinge of disappointment.
Despite these snags, I still think Zuckerberg’s brainchild is a solid investment.
Numbers That Keep My Faith
- Q4 2019 revenue jumped 25 % and operating income rose 13 %.
- Management projects a modest 20 % growth in 2020 Q1 compared to Q4 2019 – still a strong number.
- Cash & securities: US$55 billion – zero debt.
- Operating cash flow 2019 was 24 % higher than 2018.
User Engagement — Still a Powerhouse
Here’s why the social network is still engaging:
- Daily active users up 9 %, monthly 8 %, family daily 11 % YoY.
- Worldwide average revenue per user surged 15.6 % from Q4 2018.
Facebook Tackles Privacy Head-On
Zuckerberg took the mic to analysts and said:
“This year we’re focusing seriously on privacy. As part of our FTC settlement, we’re building industry‑leading controls and audits that set a new standard…more than 1,000 engineers are working on it.”
They’re rolling out a privacy check‑up tool for nearly 2 billion users to tailor privacy settings on a personal level.
From Ad Giant to Super App
Beyond ads, Facebook is branching into:
- Online dating, e‑commerce, gaming, Watch, and more.
- Each feature attracts a niche crowd, boosting overall engagement and ad impressions per user.
- Potential to become the world’s superhero app, reminiscent of WeChat’s all‑in‑one dominance in China.
- New revenue source: take rate on payments, kick‑starting WhatsApp payments and Marketplace services.
Cash‑Handling Mastery
- After settling the fine, Facebook still has a whopping US$50 billion cash reserve.
- Historical smart buys—Instagram for only US$1 billion in 2012, now a lucrative ad engine.
- Recently announced another US$10 billion earmarked for share buy‑backs—great capital deployment.
The Stock’s Cheaper Than It Looks
- Valuation sits at a mere 23.5× normalized earnings—a lowball compared to Alphabet (31×), Apple (25×), Microsoft (29×), Amazon (87×).
- Even after slowdown, revenue and profit are projected to grow close to 20 % in 2020 and beyond.
- With a sky‑high cash stash, potential acquisitions could propel future growth.
The Investor’s Bottom Line
Taking the long view, Facebook promises:
- Double‑digit growth in the near future.
- Robust moat unlikely to erode soon.
- Sound capital allocation decisions.
- Undervalued status—an opportunity that’s hard to miss.
All things considered, I’m happy with my position in Facebook.
Original article appears in The Good Investors. Content is for general informational purposes only and does not constitute professional financial advice.
