Facebook Stock: Why I Bought Shares in October 2018

I’m a dividend investor down to the core… but I see huge potential in Facebook stock. I predict Facebook will start paying dividends in the next five years. And in the next 10 years, the market cap ($410 billion) will more than double ($1 trillion+).

Facebook handles vast amounts of users’ data. Its core platform has over two billion active monthly users. Facebook also owns WhatsApp (1.5 billion users) and Instagram (1 billion users). These platforms have connected people in new and innovative ways. In the process, they’ve collected immense amounts of personal data. (Users agree to the data collection anytime they sign in. Facebook doesn’t force anyone to use its free services.)

The advertising potential is huge with such intimate user data. Facebook will bring in roughly $50 billion this year and has just touched the surface of monetizing its users. Although, now that money is flowing, more hands are reaching out. Acquisition costs are rising and regulators are stepping in to get their cut to protect consumers.

Facebook has hit the spotlight for personal data issues… but this is to be expected. It’s also great news for contrarian investors. The regulator scrutiny and negative press have pushed Facebook shares more than 30% off their highs.

Facebook Stock Drop 2018

There will likely be a better entry point in the next few years, but the case for long-term investors is strong at the current valuation. I focus on long-term trends and avoid trying to time short-term market swings.

Facebook Stock vs. Google Value Comparison

Facebook has more personalized data than Google. This is allowing Facebook to build a more targeted advertising experience. Advertisers can hone in on customers and get more bang for their buck.

Half the money I spend on advertising is wasted; the trouble is, I don’t know which half. – John Wanamaker

That quote is from over 100 years ago and shows the drastic change in advertising. Business can now track how effective their spending is down to the cent.

Google has worked on monetizing its users for longer and Facebook is following in some of Google’s footsteps. Google serves as the best value comparison I can make.

About 10 years ago, Google got close to 100% of its revenue from advertising. Google has improved its ad platforms but has invested into other projects. Google’s ad revenue continues to climb but it makes up a smaller percentage of total sales…

Google Advertising Revenue vs. Other Revenue

Other revenue for Google made of 14% of the total in 2017. In comparison, over 98% of Facebook’s sales came from advertising last year… but this will decline as Facebook builds out new products and services.

Google has tried to counter Facebook with its own social platforms but has finally called it quits. Earlier this month, Google announced that it’s phasing out Google+ after spending ≈$585 million to build it.

Google still has an impressive lineup of services that help it command market share: YouTube, Android OS, and Chrome. Although, both Google and Facebook are investing into next-gen technologies. Let’s check out Facebook’s expanding ecosystem…

Facebook Innovation and Expansion

Facebook is further along in the monetization path but the up-and-coming pipeline is strong. Here are some highlights that will add value to Facebook’s shareholders…

Instagram – Instagram is outpacing Snapchat ($10 billion market cap) and adding new features. Here’s another easy prediction: Snapchat shares will continue to fall so set up a pairs trade… short Snapchat and go long Facebook stock.

WhatsApp – WhatsApp hasn’t worked on monetizing its users much but that could change soon. The platform is adding around a million users a day.

Oculus VR – Facebook acquired Oculus VR for $2.3 billion in 2014.

The rest of this post is in the works 🙂 I just wanted to get some of it up before the earnings announcement tomorrow. More logic to follow and I’ll continue to hold my Facebook stock no matter the outcome of the earnings announcement.

Invest your time and wealth mindfully,

Brian Kehm

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