The Motley Fool

Can the Facebook stock price keep rising?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Dots over the earth connecting the world
Image source: Getty Images

The Facebook (NASDAQ:FB) stock price closed 4.18% higher yesterday following the dismissal of a lawsuit brought against the social media giant by the US government. Yesterday’s share price rise took Facebook stock’s one-year gains to  64% and pushed Facebook’s market capitalisation past $1trn. Yes, it’s official, Facebook stock is now in the one trillion dollar club.

Can Facebook stock stay in the $1trn club? Well, that depends on whether or not Facebook can continue to grow its advertising revenues. Facebook makes 98% of its money through selling ads on its various social media platforms. The company increased its revenues in every quarter of 2020. 2021 has gotten off to a good start, with first-quarter revenues of $26,171. That comfortably beat the $17,737 earned in the first three months of 2020. All in all, Facebook reported $85,965m in revenue for 2020, dwarfing the $27,638m it reported just five years ago. 

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Facebook ads and users

Facebook is an advertising juggernaut. It had a 20.2% share of the online ad market in 2019, second only to Google with 31.1%. The online ad market is also fast-growing. It is forecasted to continue to grow at 10%-12% per year on average up to 2025. So, if Facebook can at least maintain its market share, it should see higher revenues.

The number of users on Facebooks platforms (and, of course, how much Facebook can learn about them and how engaged they are) determines how much advertising punch Facebook has. It measures how much, on average, a user is worth to the company (pretty much how much ad revenue each user brings in). Users have been getting more valuable across all territories since at least 2014. At the same time, Facebook continues to grow the total number of users across its platforms.

Much will be made of the substantial drop off in US teenagers citing the Facebook platform as their favourite social app. For example, 42% of US teens had the Facebook site as number one in 2012. By 2020 that number was down to 3%. But, a fairly constant 30% of US teens used Facebook from 2018 to 2020. And teenagers don’t have the disposable income that older users have, and they still favour Facebook. Plus, Facebook has been proactive in seeing off competition. For example, it bought Instagram in 2012, which is more popular with younger audiences. 

Facebook stock price

Seeing as Facebook’s net income margin is fairly consistently above 30% — it dipped to 26% in 2019 due to an increased provision for income tax — higher revenues should translate to higher earnings. Thus, assuming investors are willing to pay a constant multiple of earnings for Facebook stock, its price should increase.

I think Facebook will continue to grow its revenues. But not indefinitely. Yesterday’s dismissal of a legal complaint against Facebook was a small victory that will allow Facebook to continue to use its market power for the time being. The case was not thrown out, raising the possibility of a refiling. Even if that does not happen, I feel US legislators will continue to try to increase competitiveness in the online ad market. Facebook owns four of the top five social media sites; it is too big a target for government competition watchdogs to ignore. As a result, I do see some major share price shocks in Facebook’s future, and I will not be buying the stock.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

James J. McCombie does not own any of the shares mentioned. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. The Motley Fool UK owns shares of and has recommended Facebook. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.