Facebook Inc. Is Growing Up

Across industries, social media is becoming a more than an advertising alternative, and the social giant will reap the rewards.

Mar 8, 2014 at 5:30PM

It wasn't long ago there were concerns about how Facebook (NASDAQ:FB) would continue its stellar top-line growth. The fear, and it was a legitimate one, was that Facebook users would get inundated with a tidal wave of advertisements. It's a fine line, balancing the need for revenue growth to placate shareholders, without undermining the Facebook experience and alienating users.

As it turns out, CEO Mark Zuckerberg had other plans for continuing Facebook's outstanding growth that didn't require more ads, and based on some recent data, it appears those plans are working even better than expected.

The plan
Zuckerberg's objective of turning Facebook into a mobile giant is working in a big way, but it's the speed of the transition that's been truly impressive. Last year says it all: Of Facebook's 1.23 billion monthly average users at the end of 2013, 945 million were mobile -- a 39% jump from the prior year.

The end of 2013 also saw the introduction of Facebook's long-awaited video advertising alternatives. Just how big is video advertising? Some analysts estimate that Facebook will generate $8.4 billion in annual revenue from its video ads once they're up and running.

In addition, Facebook advertising works because of user data -- lots and lots of user data. The result is that Facebook is able to charge more for its ads, so overwhelming its users with an unending number of spots isn't necessary to continue growing revenues. Opting for quality over quantity is a success, for both Facebook and its users.

When a plan comes together
Traditional advertising is good, but long-term revenue growth is even more likely now that marketers view Facebook as more than an advertising machine. Facebook is becoming a primary tool for companies to build branding, public relations, and customer relationship management partnerships with consumers, and that changes everything.

As analysts from Stifel Financial's equity trading desk describe it, "marketers [now] view Facebook as a strategic communications platform, capable of establishing and reinforcing relationships with consumers." The result is that going forward, Facebook is expected to get an even bigger piece of companies' marketing budget.

And that's not all. With the change in how Facebook is being viewed, and utilized, by marketers, comes an ancillary benefit: Building long-term, profitable relationships with Facebook's ad clients. Driving a successful branding campaign, for example, requires a long-term commitment from a company. An ad running for a couple of weeks pushing the latest, greatest widget is nice, but that doesn't necessarily result in sustaining revenue growth over the long haul.

With the subtle shift in how marketers are using Facebook taking hold, particularly in conjunction with Facebook's emphasis on mobile users, incorporating video, and continuing to grow and utilize its mountains of user data, questions about Facebook's growth become moot. And that should have investors cheering, even after Facebook's extraordinary 151% jump in share price the past 12 months, nearly 28% of that coming this year alone.

Final Foolish thoughts
Concerns that Facebook will be able to maintain its upward user and revenue trends were certainly valid. But based on feedback from the folks who matter most when it comes to Facebook's growth -- the heads of large marketing departments -- the future is looking good for Zuckerberg and team. Yes, Facebook is trading at more than 114 times trailing earnings, but that shouldn't scare off investors. At only 41 times forward earnings, Facebook still makes a nice addition to most any mid- to long-term growth portfolio.

Facebook's not the only long-term growth option
It's no secret that investors tend to be impatient with the market, but the best investment strategy is to buy shares in solid businesses and keep them for the long term. In the special free report "3 Stocks That Will Help You Retire Rich," The Motley Fool shares investment ideas and strategies that could help you build wealth for years to come. Click here to grab your free copy today.

Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Facebook. Try any of our Foolish newsletter services free for 30 days. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers