Under normal circumstances, it is best to diversify your holdings to maximize your return per unit of risk. However, if I had to choose only one stock, it would have to be Facebook (NASDAQ:FB).
The business has proven resilient in the face of the coronavirus pandemic. Furthermore, its team has shown the ability to work remotely effectively. Finally, its conservative cash management has allowed it to be opportunistic while others hunker down. These are all strong positives when considering an investment for the aftermath of the outbreak.
How is the coronavirus affecting Facebook?
As people spend more time at home, they are looking at Facebook's family of apps to connect with friends, family, and classmates. In the most recent quarter, the company added 100 million daily active users (DAU) to its family of apps, bringing its total to 2.36 billion DAUs. What's more, is the usage in areas affected by stay-at-home orders saw dramatic increases.
Although the surge in usage may not be sustainable, it has introduced millions of new users to Facebook's services, and some who were casual users may permanently become more active. People who spent time downloading the app, creating a profile, and uploading pictures are more likely to interact with the app in the future.
Moreover, the outbreak of COVID-19 may cause long-lasting changes in business and consumer behavior. Adjustments made by people to get work done at home will make it easier for them to continue working from home even after the pandemic has run its course. Building out a capable home office, for example, is a sizable one-time investment.
The company's workforce has proven effective in working from home, dealing with the surge in demand from around the world with few problems. If Facebook can operate at a high level with a portion of its staff working from home, then it can reduce spending on office space and other associated expenses while casting a wider net for talent.
Finding opportunity amid difficulty
Facebook is accomplishing what only very select businesses around the world can do, which is reaching 40% compounded annual growth in revenue over the last six years. What's more, its annual net profit margin has stayed above 20% since 2015.
Whether it will be able to maintain the streak in light of the coronavirus pandemic remains to be seen. Nonetheless, the impressive work over the years has helped it build a pristine balance sheet.
As of March 31, its cash and marketable securities stand at roughly $60 billion, and the company has no debt, giving it the flexibility to deal with the current unprecedented circumstances opportunistically.
While many cash-strapped businesses are laying off workers, Facebook onboarded a net 3,300 employees in the quarter. Moreover, in April it announced a $5.7 billion investment in Jio Platforms Limited, which is part of Reliance Industries Limited, one of India's largest companies.
What this means for investors
With most of the world focused on combating the coronavirus, the risks the company was facing before the outbreak have been somewhat muted. Importantly, government regulation remains a substantial headwind for the company. Its ability to assuage government officials and maintain targeted advertising will be a key to revenue and profitability in the long run.