Being a socially responsible company is not a zero-sum game, where the more socially responsible you are, the worse your financial performance is, and vice versa. Profits don't go out the window when you treat the environment better. And similarly, socially responsible investing is not a zero-sum game, where the more socially responsible you are, the worse your portfolio's performance is. So go ahead and consider investing in some socially responsible companies – like Facebook Inc (NASDAQ:FB).
In general, socially responsible investments can be quite competitive with their counterparts. A 2011 study from Harvard Business School, for example, looked at 18 years of data and found "strong evidence that firms emphasizing [socially responsible] practices significantly outperform similar firms that do not, as measured by both financial and stock market returns." Meanwhile, a 2014 study by the folks at asset-management firm New Amsterdam Partners found "a positive linkage between stocks with higher ESG (Environmental, Social and Governance) ratings and superior returns and reduced price volatility."
What's so socially responsible about Facebook Inc?
Well, for starters, its Chief Operating Officer is Sheryl Sandberg, author of Lean In, and an advocate for women in business. Here are some other details of interest:
The company has a special Facebook page detailing its commitment to environmental stewardship and regularly reports on its green progress. For example, in 2013, its energy mix was 14% clean and renewable, 34% coal, 17% natural gas, 23% nuclear, and 12% uncategorized (power bought on the spot market), and it's aiming for 25% clean and renewable energy by the end of 2015.
The company's Menlo Park, California, headquarters features a 208 kW DC solar energy system on its roof. Last year, Facebook launched public dashboards that graphically display real-time energy and water efficiency in two data centers. They were well received, so "In the spirit of transparency ... we're open sourcing the code for these dashboards so anyone can use it."
The company is a leader in sustainability, citing the following, for example:
In mid-July, WRI and WWF [the World Resources Institute and the World Wildlife Fund] published the Corporate Renewable Energy Buyers' Principles, with Facebook and 11 other companies as co-signatories. We worked with WRI, WWF, and the other companies to develop the principles to spur a public dialog around the challenges we and many other companies face as we work to buy clean energy and move to 100% clean energy powering our operations. This builds on the collaborative work we've done over the past several years with WRI and BSR as part of the groups of companies they have convened to share best practices, identify barriers, and engage with key policy makers.
Why might you invest or not invest in Facebook Inc?
Given all that, you may very well now want to invest in Facebook. But should you? Let's take a look at it. First off, here are some eye-popping numbers from the company itself:
- 864 million daily active users on average in September of 2014
- 703 million mobile daily active users on average in September of 2014
- 1.35 billion monthly active users as of September 30, 2014
- 1.12 billion mobile monthly active users as of September 30, 2014
- Approximately 82.2% of daily active users are outside the US and Canada
Not many companies have more than a billion customers! It's noteworthy that Facebook also has more than a billion mobile users, too, reflecting a very effective move into that fast-growing realm. (The number of mobile users jumped 31% in just one year.)
Facebook's balance sheet is quite solid, with cash short-term investments growing more than six-fold over three years, shareholder equity growing seven-fold, and no long-term debt. The company's revenue and earnings have been growing rapidly, with revenue quintupling and net income roughly quadrupling since 2010. Better still, profit margins are up, and free cash flow tops $3 billion. (Net profit margin was recently a fat 23.7%.)
The company gets most of its income by selling a lot of advertising – increasingly on its mobile platform. (Sixty-six percent of ad revenue came from mobile ads in its third quarter, up from 49% a year earlier.) In its third quarter, revenue popped 59%, while earnings soared 90%. It has started running video ads, and is delivering a billion of them per day, or more.
The company is aiming to expand in many directions, too, and has already enjoyed success on that front. It recently bought the virtual reality headgear maker Oculus, and is working on monetizing Instagram, an earlier acquisition. It bought the cross-platform messaging app WhatsApp for $19 billion, with many viewing the price as ... well, crazy. Facebook has spent more than $22 billion buying a bunch of companies in the past six years. There's speculation that Facebook is aiming to compete with LinkedIn via a "FB@work" offering. International expansion is another growth driver, and its WhatsApp purchase helps there, as it has many African users.
If you're looking for dividends, you're out of luck with Facebook, as it's still young and growing briskly, needing to reinvest excess cash in itself. Dividends aren't everything, though. Facebook shares have been surging since its IPO back in 2012, rewarding shareholders handsomely.
It's clear that this is an exciting, fast-growing company that's also trying to do the right thing in many areas. With its P/E ratio near 80, though, it doesn't look like a bargain. It might be, though, given the company's growth rate and potential for creating new revenue streams from its enormous customer base. The stock even dropped a bit recently, when the company reported its third-quarter results and cited big investments that could put pressure on profits in the near term.