Facebook (META 3.00%) reported its first-quarter earnings last week and blew away expectations across the board. But despite the great performance, the stock still trades at a discount to its tech peers such as Apple (AAPL -2.05%), Microsoft (MSFT -0.71%), and Amazon (AMZN -2.22%)

Facebook has been plagued by plenty of negative headlines over the last year, including an advertising boycott and a potentially harmful iOS update. But with all the noise impacting the stock, now might be a great time for investors to examine whether or not the market is underestimating Facebook's potential.  

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Stellar numbers

Before diving into some of the potential growth ahead, it's worth taking a look back at the recent quarterly numbers. Facebook grew its total quarterly revenue by 48% versus the same period a year ago, which is a significant acceleration from the 18% revenue growth last year. Though advertising revenue accounted for the bulk of the growth in sales, Facebook also generated 146% growth in its "other" revenue category, driven by strength in its virtual reality and e-commerce initiatives.

Looking past revenue, Facebook also delivered record profitability reaching a 43% operating margin. To piggyback on the better-than-expected results, management announced that investments in capital expenditures will be less than originally anticipated, meaning that shareholders can expect greater free cash flow. 

On top of the remarkable financial results, Facebook also found a way to grow its monthly active user count by 10% to 2.85 billion people around the world. With that many users logging on to a Facebook app each month, the transition to new growth avenues should be much easier. 

What's ahead?

During Facebook's quarterly conference call, CEO Mark Zuckerberg expressed plenty of optimism. Though the company's bread and butter is still in advertising, Zuckerberg stated that its investments in augmented reality (AR) and virtual reality (VR) are taking up a major part of the research and development budget for the company. He said the new Oculus Quest 2 is still seeing strong engagement even after the holiday season. 

Outside of the AR and VR initiatives, Facebook has been innovating in e-commerce as well. In May of 2020, the company introduced its online storefront feature called Shops, which allows businesses to sell directly through Facebook or Instagram. This quarter, the company reported that there are already more than 1 million monthly active shops and 250 million monthly visitors to those shops. As it continues to roll this feature out to new geographies, businesses all around the world will be able to leverage Facebook's various apps to seamlessly communicate with customers for marketing, taking orders, or even customer support.

But despite all the positives Facebook has seen, there's still one looming concern for shareholders. Apple's new iOS 14 update for iPhones will likely result in Facebook losing some access to certain user information. Though CFO Sheryl Sandberg said that the company is doing everything it can to "mitigate the impact," it's difficult to tell what this change could mean for Facebook's advertising effectiveness.

Are investors underestimating Facebook?

Given the impressive growth in Facebook's advertising revenue this quarter, it's hard to dispute the value that its personalized ads provide to businesses. But the uncertainty around the company's ability to collect user data has resulted in the stock trading at what looks like a sizable discount to its peers. 

  Apple Microsoft Amazon Facebook

Trailing-12-month revenue growth

21.4% 15.3% 40.5% 28.7%

Operating margin (operating income/revenue)

27% 40% 7% 40%

Price-to-operating income multiple (market cap/operating income)

24.7  29.8  62.9  22.6 

Given the lack of predictability about Facebook's future in advertising, the short-term results might be lumpy. But with roughly 1.9 billion daily active users across its various apps, its massive customer base should bode well for success in other initiatives. For shareholders with a long-term mindset, there are several avenues that could drive growth, and the stock appears to be at an attractive valuation.