This article was written by Arnold Sim
Arnold started his investing journey 1 year ago, back in 2017. He is currently waiting for his enlistment for the army. In his first year, he achieved a return of 20%.
We had the privilege today to invite the Founder and CEO of VIC, Sean Seah, to sit with us and tell us his view on the current Facebook Share Price. Is it an opportunity or is it an indicator to sell? As of this writing, Facebook Share Price is currently 177.78 after the huge 20% crash from the bad news of slowing growth and increasing expenses of infrastructure.
As a Value Investor, our mission is to collect fundamentally strong businesses at discounted price. So let’s explore the first criteria of “Is Facebook a fundamentally strong business”.
During the Facebook scandal saga, many Facebook users might have seen the #deleteFacebook movement on their newsfeed. Some notable celebrities even came forward and supported this movement. Elon Musk, founder of Tesla and SpaceX, is one of the celebrities that supported the movement of deleting Facebook accounts and pages.
One thing that people may not know is that Facebook is not just “Facebook.com”. Facebook also owns popular social media platform Instagram, and popular messaging platform Whatsapp. If the movement was successful, Facebook would still have these platforms to build itself on.
After knowing what Facebook’s resources are, we now have to find out how they are making money. One of the biggest revenue driver for Facebook is through their advertising arm. If you are a frequent user of Facebook or Instagram, you must have come across Sponsored Post when you are scrolling through your newsfeed. Facebook’s advertising arm has generated 13.23 Billion in their most recent quarterly earnings report. Facebook still more room for monetization from their messaging platform, Whatsapp.
In Facebook’s 2017 Annual Report, we can see the breakdown of revenue from the services Facebook offers. We can see that their strong advertising arm comprise of over 98% of their total revenue.
If a company is highly dependable on one source of income, one concern that investors might have would be “Are they able to grow this segment of their income and is it sustainable”. From Facebook’s 2018 second quarter report, we can see that their revenue for advertising has been growing steadily and we can see a clear pattern that Facebook’s Quarter 4 is crucial because of the high spending on advertising during the holiday period where consumer’s spending tendency would be higher.
Does this prove that Facebook is a strong company? Facebook is currently one of the leading advertising platforms used worldwide by companies and individuals to build their brand or sell their products. If you see yourself and the people around you still using Facebook in 5-10 years, this is a strong indicator that Facebook is able to grow and also increase their price of advertising and more advertising requests by companies because the attention of people will be on Facebook and Instagram. Facebook is also always innovating on their platforms, we can see that with the release of advertising on Instagram Stories, the release of IGTV and buying of products through Instagram posts. With constant innovation within Facebook, it is difficult to see why they will not remain leaders in the advertising industry.
The second Criteria that a Value Investor should look at is the Price of the company. Is the current Facebook Share Price on a discount? To answer this question, we have to first know the entry price for Facebook.
Through Value Investing College’s Entry Price Calculator, as of 6 August 2018, the Entry Price of Facebook is $205.56 with a review price of $246.67. In theory, there is an opportunity to buy a company shares when the current price is lower than the Entry Price. With Facebook Share Price currently at $177.78, there is a Margin of Safety of 13.5%.
If you’d like to find out how to buy stocks from companies such as Facebook, or even how to start investing in Singapore, why not join our FREE value investing masterclass where we’ll teach you how to valuate stocks at an undervalued price through our Entry Price Calculator? With the right knowledge and tools, you too can search for discounted stocks to help grow your wealth and achieve financial freedom!
Be the first to comment on this article!
More from us