The Facebook (NASDAQ: FB) share price is the first of Jim Cramer’s FAANG stocks (Facebook, Apple, Amazon, Netflix, and Google). Its founder, Mark Zuckerberg, is one of the wealthiest people in the world.
The website boasts 2.9bn monthly active users, adding 100m over the past year. That’s over 35% of the global population. According to SEO experts Ahrefs, this makes Facebook the second-most visited website in the world.
The brand is found everywhere from cereal boxes to company cards. But is the Facebook share price good value right now?
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The Facebook share price has doubled in less than two years, reaching an all-time high of $362 yesterday. The company is now part of the $1trn valuation club. Its price-to-earnings ratio (P/E) is only 26, which is the same as the NASDAQ average.
I think last month’s Q2 earnings report demonstrated excellent growth. To start with, revenue increased 56% year-over-year to $29bn. Facebook estimates that it now receives 77% of total global social media advertising spending, with 98% of its revenue coming from advertising. The company has charged a 47% year-over-year increase in the average price per advert, which is justified by client exposure to its gigantic userbase.
Facebook’s CFO expects ad prices to rise again in Q3 and Q4. This means that revenue is likely to continue to grow in the short term. However, an over-reliance on advertising income is a double-edged sword. While the global economy continues to grow, so will the need for advertising services. If there’s a major economic shock, the Facebook share price could be hit hard.
Also of concern is the fall in use by the 13-19 age bracket. According to analytics firm Sprout Social, only 51% of US teens use Facebook in 2021, down from 71% in 2016. As 29% of Facebook’s advertising audience is under 25 years old, a continued reduction in teenage use now could spell falling revenue in the future.
Facebook share price risks
Last year, the US government and 40 state attorneys launched a major anti-trust lawsuit against the company. They claimed that Facebook had become a virtual monopoly by acquiring Instagram in 2012 and WhatsApp in 2014. In June, the case was dismissed as regulators had taken too long to act. However, the lawsuit is going to appeal, setting the stage for a major legal battle that could end with a breakup of the company’s divisions.
Then there’s the recent spanner thrown in the works by Apple. With a market cap of $2.36trn, it’s the most valuable company in the world. It has sold 1.5bn iPhones since 2009, and maintains a 20% global market share.
Apple now requires iPhone users to give apps like Facebook permission to track them to generate customised adverts. According to Branch Metrics, less than a third of iPhone users have given permission. This could have a big impact on future ad revenue, as 80% of Facebook users only access the site through their smartphones.
There’s also the continued importance of Mark Zuckerberg. Plenty of investors believe his vision for the company is crucial. Like Tesla CEO Elon Musk, his eventual departure could hit the Facebook share price hard.
However, I’d still buy Facebook shares. Record revenue paired with a relatively low P/E ratio are two fundamentals that are too hard for me to ignore.
