Facebook Is Poised for More Growth

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Facebook's (NASDAQ: FB  ) recent slowdown in new user growth is a threat to profitability and a sign that the market is changing in ways that may require a lot of adaptation. The number of daily active users grew an average of 34 million per quarter for the last eight quarters, compared to an average of 29 million over the last two quarters. Facebook's own analysis shows that the number of daily active users accessing Facebook's services on a PC is declining. If the company fails to navigate changes to the way people access the Internet, it would be incredibly detrimental.

Additionally, Facebook only has one main way of engaging users that is meaningful to marketers. The company's messenger service isn't intended to be a platform for advertisers, and its main purpose is to retain users and reduce the likelihood that they will utilize other services for instant message functionality. Instagram is also a problematic space for advertisers since it is, essentially, a refined alternative to Facebook's News Feed. That leaves the News Feed to carry the burden of nearly all advertising business, and it's being stretched to its limits in that capacity.

Why Facebook is a buy
Facebook's ad revenue is up 63% compared to last year. Amazingly, this can be attributed almost solely to a 20% increase in the number of ads displayed and a 36% increase in the cost per ad. Combine that fact with the new daily active user growth on mobile devices, and there is one obvious conclusion: marketers like what Facebook is doing with mobile.

The best part is that mobile is where Facebook has the most room to grow. More than half of daily active users are accessing the site's services solely through mobile devices. There are an estimated 3 billion people using mobile devices worldwide, which means Facebook currently only reaches 18% of all mobile device users on a daily basis .

Facebook's revenue and free cash flow are up from a year ago  , and cost of revenue as a percentage is down. Facebook's new Paper app is an example of what this new investment power is likely to bring. The app is clearly focused on increasing user engagement and the amount of time users spend on Facebook services. Based on an initial inspection of the app, it is likely to accomplish that goal.

Things to Keep an Eye on
The No. 1 measure to watch is ad revenue growth. As long as that is growing (even if growth slows), it will allow Facebook to achieve its goals. Facebook's priority should be to capture as much of the still burgeoning social media universe, while big brother Google (NASDAQ: GOOGL  ) isn't particularly focused on it. Another important measure that is hard to track, but well worth it, is talent retention. Presently, Facebook has great employees, but it could spell trouble if those people are wooed away (which is not uncommon in the Silicon Valley world). At this point, one key hire or loss could make a big difference.

A tech stock that's really worth it
Opportunities to get wealthy from a single investment don't come around often, but they do exist, and our chief technology officer believes he's found one. In this free report, Jeremy Phillips shares the single company that he believes could transform not only your portfolio, but your entire life. To learn the identity of this stock for free and see why Jeremy is putting more than $100,000 of his own money into it, all you have to do is click here now.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2823809, ~/Articles/ArticleHandler.aspx, 9/4/2015 8:26:41 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Charlie Roe

Today's Market

updated 11 hours ago Sponsored by:
DOW 16,374.76 23.38 0.14%
S&P 500 1,951.13 2.27 0.12%
NASD 4,733.50 0.00 0.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/3/2015 3:59 PM
FB $88.15 Down +0.00 +0.00%
Facebook CAPS Rating: ***
GOOGL $637.05 Down +0.00 +0.00%
Google (A shares) CAPS Rating: ****