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Facebook: There'll Be No One To Stop Us This Time

Detroit Bear profile picture
Detroit Bear


  • Facebook posted incredible Q3 results driven by the value of its advertising platforms.
  • I think Facebook's network effect has made its product offering so strong that no one can truly compete.
  • I am increasing my fair value to $195-210.
  • In spite of governmental risk, I think shares look attractive.

I was sitting in my cube this afternoon when Facebook (FB) posted third quarter results. I nearly had a heart attack when I saw the results – revenue up a whopping 47% y/y to $10.3 billion and earnings per share of $1.59, an increase of 77% y/y. As a shareholder, my mind immediately flashed to Darth Vader in the beginning of A New Hope, saying confidently, “there’ll be no one to stop us this time.”

Not that I believe Facebook is an evil company, but after seeing this unprecedented acceleration, I am confident that Facebook is one of the most competitively advantaged companies I have ever seen. The company owns mobile advertising, and I believe growth will continue for several years. I have updated my model to incorporate this quarter’s robust results, and I believe shares are now worth $195-210. Let’s dig into why Facebook has more room to run after its 59% increase YTD.

Mobile Ownership and Pricing

Facebook undoubtedly owns mobile, and I believe this is a combination of the Facebook app and Instagram, though the less discussed WhatsApp will unlock significant value in the future. Mobile advertising increased a whopping 57% y/y, and it now contributes 88% of total ad revenue. Facebook surpassed 6 million advertisers, while Instagram recently surpassed 2 million advertisers.

With advertisers flocking to the platform after analyzing the high return on investment, price per ad increased 35% y/y. The addictive nature of Facebook and Instagram combined with less sensitivity to ads has made Facebook the owner of the new most valuable app properties in the world. Considering how effective these ads can be, Facebook may own the two best advertising assets in the entire world.

The formula for this is simple: the great data available and algorithms provide incredibly relevant ads that are worth

This article was written by

Detroit Bear profile picture
A bear out in the woods.

Analyst’s Disclosure: I am/we are long FB, V. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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