Multibillion-dollar fund managers' investment decisions aren't always right, nor should investors blindly mirror a money manager's trades. However, it is intriguing to monitor what the big hitters are buying or selling each quarter, which they are required by SEC regulations to report in a quarterly 13F filing.
Money managers couldn't seem to get enough of Facebook (NASDAQ:FB) to kick off the year. With its stock price up over 14% year to date, Facebook has delivered a solid return for the eight billionaires who got on board in the first quarter. Despite the company's solid performance in 2016, the question is whether all those funds that poured literally billions of dollars into Facebook stock were right.
What's not to love?
In what has become a recurring theme, Facebook blew away analyst expectations for earnings, revenue, and ongoing monthly active user (MAU) growth in Q1. Simply meeting sales and earnings-per-share (EPS) expectations of $5.25 billion and $0.62, respectively, would have been a banner quarter.
Facebook's stellar results were led by its 57% jump in advertising sales. CEO Mark Zuckerberg doesn't share specifics, but video spots and monetizing Instagram almost certainly played key roles in its $5.2 billion of ad revenue and in pushing total sales up 52%, to $5.38 billion.
Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), the undisputed king of digital advertising, grew its ad revenue 16% in the first quarter. Of course, at $18 billion in ad revenue it takes a lot more to move Alphabet's needle than Facebook's, but with each successive quarter the gap between the two industry heavyweights is narrowing.
The group of billionaires who bought a whopping 26,750,364 shares ahead of Facebook's Q1 earnings news, valued at $3.19 billion as of the close of trading May 27, certainly benefited from its impressive revenue growth. But top- and bottom-line financial improvements only tell part of Facebook's story, which is why -- in this case -- all those billionaires got it right.
Good times ahead
It wasn't long ago that pundits were lamenting Facebook's future. The concern was that Facebook's MAU penetration would become saturated, and retaining its impressive engagement levels would wane. The logic behind the bearish sentiments made sense, but Facebook "friends" clearly ignored those concerns.
Last quarter ended with Facebook increasing its MAUs another 15% compared to the year-ago period, and now the platform boasts 1.65 billion users -- slightly more than half the world's Internet-connected population. The upside for investors -- billionaire or not -- is that Facebook's total MAUs weren't the best part of its user growth in Q1.
It wasn't long ago that Facebook's lack of a mobile presence was also concerning for some. Of its MAUs, 1.51 billion now access Facebook via a mobile device. Safe to say, it's conquered its mobile problem. As for engagement, Facebook's daily active users (DAUs) is perhaps its most impressive Q1 result of all.
Over 1 billion users access Facebook every day, including 989 million using a mobile device: That's an increase of 24% compared to a year ago. No social media site can touch that level of engagement, and ongoing efforts to enhance the Facebook experience should increase usage even further.
The Oculus Rift virtual reality (VR) headset garnered a lot of hype when it began shipping earlier this year, and it could prove to be a nice source of ancillary revenue. However, VR will likely play a larger role in driving Facebook's engagement levels and future ad sales, as outlined in Zuckerberg's original plans when Oculus was acquired for $2 billion in March of 2014.
Zuckerberg conceded that VR gaming would be first in line when Rift was market-ready. But gaming was just the tip of the iceberg, as Facebook demonstrated at its recent F8 developer conference. In addition to artificial intelligence and connecting the world's under-served masses, among other initiatives, Facebook demonstrated Social VR that offers users an immersive, interactive experience.
Monetizing Instagram and releasing Rift should help sales in 2016, and with WhatsApp, Messenger, and social VR on the horizon, there is no shortage of growth drivers long into the future. Billion-dollar fund managers don't always think long-term, but the eight that jumped on board in Q1 should hold on to their Facebook stock with an iron grip.