Facebook Is Poised for More Growth

Facebook's latest yearly numbers show the company is becoming what investors hoped it would be, and what makes it a buy now.

Feb 10, 2014 at 11:45PM

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.

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Charlie Roe owns shares of Facebook. The Motley Fool recommends Facebook and Google. The Motley Fool owns shares of Facebook and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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