Facebook Stock Predications | Buy More, Hold or Sell Facebook Stock?

In late 2018, I invested about 10% of my total portfolio in Facebook stock. At the time, investors had beaten down the share price. It had dropped more than 30% and the headlines weren’t looking good. It was around the time of the Cambridge Analytica scandal… but I thought the risk-to-reward was too good to pass up. 

When I bought in, I shared some insight on why I put so much of my life savings into just one company, as I’ve done recently with Alibaba stock. I also shared two big Facebook stock predictions… 

Facebook stock predictions from 2018 article

I predicted Facebook would start paying dividends in the next five years. And in the next 10 years, the market cap (around $410 billion at that time) would more than double (to above $1 trillion). 

In less than three years, Facebook’s market cap has already topped $1 trillion. And I’m up about 140% on the position. I have some nice capital gains and I thought it’d be a good time to update my predictions. The dividend prediction hasn’t played out yet but there’s still time. 

In this article, I’m going to help answer, is Facebook still a good investment? And should I sell now or buy more? 

Why Did I Buy Facebook Stock? 

I mainly focus on dividend stocks. So, it’s a bit odd that I bought shares of Facebook. They don’t pay dividends. Although, I still think there’s a solid probability of Facebook paying dividends in the next couple of years. It’s a cashflow machine!

Facebook annual revenue 2010-2020

Looking at Facebook’s revenue, it continues to soar. It’s gone from $2 billion in 2010 to $86 billion in 2020. The annual growth has slowed down – as expected – but it’s still up 22% over the past year. Even with constant negative headlines and comments against the company, as well as Mark Zuckerberg, billions of people still use its products. 

It’s a bit ironic that so many people trash talk the company in the online platforms that it’s built. On top of that, most of Facebook’s services are completely free. No one has to use them but they continue to do so because they’re some of the most useful platforms around. Facebook literally spends billions of dollars trying to create some of the most useful services. 

Now, I do have a concern with pressures on the antitrust side. In some areas, Facebook does have a lot of control. And regulators have been pushing on tech giants. Although, the old laws from the Sherman Act, etc. don’t apply well to free services in our digital world. 

Nonetheless, I’m sure we’ll see some increased regulation on Facebook’s businesses… but I have no doubt the company will continue to grow. 

The user growth in the U.S. has stalled but it’s still growing in Asia-Pacific and the rest of the world. And either way, Facebook is finding better ways to monetize its users here and abroad… 

Facebook's average revenue per user (ARPU) growth worldwide 2012-2020

In 2020, Facebook made just over $10 per user on average worldwide. This continues to grow and the cash is piling up. I’ll show you the total cash buildup here soon, along with the potential for dividends, but first I want to hit this point home… 

If you own a business, small or large, Facebook is one of the best places to find new customers. Thanks to huge amounts of user data, it can be one of the most cost-effective places for your ad spend. The internet has changed the business world. One of my favorite quotes on this end comes from John Wanamaker, a pioneer in advertising… 

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

John Wanamaker

This quote comes from over 100 years ago and shows the drastic change in advertising. Businesses can now track how effective their spending is down to the cent. And a cent today is worth a heck of a lot less than it was back then.  

Facebook has a huge advantage with the user data it collects from its websites and apps. Other mediums such as TV, billboards and radio broadcasts simply aren’t as effective. 

And once again, there’s a lot of pushback on Facebook. In 2020, big companies boycotted Facebook Ads. To name a few… Verizon, Honda, REI, Best Buy, Microsoft, etc. But as you’ve already seen, Facebook’s revenue still grew over 20%. Why’s that? Because Facebook has millions of small businesses that advertise on its platforms… and the boycott didn’t last long. Facebook is one of the most effective places for businesses to reach customers. 

On the data security side, Facebook has also made great strides. To be honest, I’d trust some Facebook services more than certain government agencies that require our info. Either way, Facebook is completely free to use and you don’t have to share any of your information with the company… but billions of people choose to do so because of the benefits they get from Facebook. 

Now, let’s look at growth opportunities and new technologies. This is where I’m most excited, as both a consumer and investor… 

New Facebook Revenue Growth 

Facebook and Mark Zuckerberg aren’t resting on their laurels. The core of the business is advertising but they’re expanding on many fronts. For example… payment platforms, cryptocurrency, artificial intelligence, e-commerce, gaming and dating. That’s just to name a few and the area I’m most excited about is virtual reality, as well as augmented reality. 

It’s hard to predict technology shifts but there’s early momentum and a lot of room to run. Facebook acquired Oculus VR for $2.3 billion in 2014. Since, it’s launched multiple VR headsets and its new Quest 2 headset has outsold all the others combined. Some estimates put the total number of Quest 1 and 2 headsets sold at close to three million. And that’s no number to sneeze at. It’s fast approaching 10 million units and that’s a key benchmark. That critical mass will lead to even more developer interest and innovation. This then pulls in even more customers. It compounds! 

I have no doubt that Facebook is losing money on these efforts but it’s playing the long game. There are some big competitors but Facebook is a leader in VR and AR. And if the company is able to own market share in hardware of the future, this gives it a big leg up. Some outlets report that close to a fifth of Facebook’s workforce is working on AR and VR. 

I’m optimistic on these forward-looking efforts. But either way, its core advertising business is rock-solid for investors. The company will continue to drive cashflow higher for investors. 

Facebook Stock Forecast and Dividends 

To update my Facebook stock forecast, I believe the company will continue to grow. I wouldn’t be surprised to see a $2 trillion market cap in the next few years. Of course, that’s barring a market wide setback. For a bolder prediction, I’d say Facebook’s market cap could reach $5 trillion in the next 10 years.  

On the dividend side, I’ll stick to my original prediction. I still think there’s a solid probability that Facebook will pay dividends in the next few years. 

There’s a lot of cash piling up as you can see in this chart… 

Facebook dividends look likely with cash climbing from $2 billion in 2010 to above $60 billion in 2020

In 2010, cash and cash equivalents came in just below $2 billion. But since, it’s climbed well above $60 billion. The company is a cashflow machine and can only reinvest so much. Total debt is also small compared to this. 

At current valuation, buying back more shares probably wouldn’t be as useful for investors. And when it comes to considering dividends, there are two paths. Will Facebook follow in Google’s – aka Alphabet’s – footsteps and not pay dividends… or in the footsteps of Apple, Microsoft and most other tech giants. My money is clearly on paying dividends. But either way, the share price appreciation should make it more than enough to hold onto. 

I don’t plan on selling anytime soon or buying more Facebook stock at its current valuation. It’s already my largest position and I don’t want to over extend. 

If you want to see an investment I’ve recently made, check out my write-up on Alibaba stock. Also, please let me know if you have any questions below.

Invest mindfully,

Brian Kehm

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3 Comments

  1. SavyFox September 14, 2021
    • Brian Kehm September 14, 2021
      • SavyFox September 16, 2021

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