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Facebook: Short-Term Pain Equals Long-Term Gain

Aug. 07, 2018 12:03 PM ETMeta Platforms, Inc. (META)GOOG, TWTR30 Comments
Michael Henage profile picture
Michael Henage


  • The move toward Stories is painful in the short-term, but the right long-term choice.
  • Facebook has something it's peers don't: pricing power.
  • Say what you want, Facebook is killing its peers when it comes to cash flow.
  • Valuation matters, and Facebook looks relatively cheap for the first time in a while.

If you ask the average investor what they expect from Facebook (NASDAQ: FB) stock in the future, you’re likely to figure out if they are a trader or investor. A trader looks at the company’s comments from the last earnings call and worries about slowing growth. An investor probably looks at the fact that Facebook stock has a compound annual growth rate of nearly 30% over the last five years. No matter which side of the fence you fall on, there are 3 numbers that suggest not only is Facebook doing fine, but that it could be relatively undervalued.

What’s the story?

In the short-term, there is a significant change being pushed by Facebook that bears the blame for the company’s slower growth. In an effort to drive better engagement, Facebook is pushing users to tell their story through the site or the app. “Stories” weren’t a piece of the Facebook puzzle a short time ago, but the company realized how well stories worked inside of Instagram and began making this a central feature of Facebook as well.

Comparing Facebook’s results to competitors such as Alphabet (NASDAQ: GOOG) or Twitter (NYSE: TWTR) yields a somewhat surprising result even with this shift in focus, more on that later. Facebook’s Stories feature is being used by “just” 150 million users or roughly 10% of the company’s daily active users.

By comparison, some of the major revenue drivers at Alphabet and Twitter are largely unchanged. The majority of Alphabet’s revenue comes from the company’s advertising and specifically paid clicks. Twitter generates most of its revenue from advertising engagements. Facebook is trying to separate itself from its competition. Users primarily go to Twitter to find out about events or follow celebrities. Google is ubiquitous with searches for information. Facebook wants to get back to being the network that connects users to

This article was written by

Michael Henage profile picture
I've been investing for over 20 years and have written over 1,300 articles about investing and stock analysis. I'm a tech nerd and a completely obsessed NFL fan.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

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