Facebook (NASDAQ:FB) reported a fantastic first quarter in its earnings report last week.
In this segment from the Motley Fool Money radio show, Chris Hill, Jeff Fischer, and Ron Gross talk about a few of their many metrics that saw growth, what Mark Zuckerberg was probably thinking when he issued a new class of shares with no voting rights, and how the stock looks from a valuation standpoint now.
A transcript follows the video.
This podcast was recorded on April 29, 2016.
Chris Hill: There were a lot of numbers in Facebook's first quarter report, and all of them, Jeff, appeared to be up. Revenue, profits, monthly active users. This was another monster quarter for the social network.
Jeff Fischer: Share count up as well. Anyway, Chris, like with [Amazon.com] (NASDAQ: AMZN), year-over-year growth rates accelerated at Facebook to the highest rate since late 2014. They had a really strong 2015, but they're now growing more quickly than they were last year, at least in this quarter. Margins also went higher.
I still believe they only have about 12% market share, according to eMarketer, of total digital marketing ad spend right now, which is nearly a $200 billion market. Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), in contrast, has about 30% market share. So 12% market share, and yet they have the most traffic, and the most engaged audience. So they're going to keep getting more and more of that advertising market share. The thing to keep in mind is, consumers have really driven everything onto mobile platforms, and businesses are well behind, they're still catching up and learning how to monetize all that audience.
Hill: You mentioned the share count. They also announced a new class of shares, C shares, with no voting rights.
Ron Gross: [laughs] A new trend.
Hill: So, just in case anyone was wondering whether or not this is Mark Zuckerberg's company, it is.
Fischer: Yeah. Who votes, anyway? Not to be blase about it, but it makes more sense in this case than it may have with Google or Under Armour in that Mark and his wife, Priscilla, want to give away 99% of their shares over their lifetimes. But as they give away shares year by year, they want to maintain control of the company. So you can look at this positively or negatively, or be neutral on it --
Gross: You could do all three.
Fischer: [laughs] Yeah, you could. What a universe, all these variations you can take. I view it as neutral, as long as the business is growing and I agree with the direction they're taking it, I'll be a shareholder.
Gross: And that's where it can get tricky, if it starts to not go well, or people start to not like what he's doing, and then you can't get an activist investor coming in, you can't vote, because he maintains control. So while everything's great, that structure is fine.
Fischer: Yeah, you vote with your feet if it isn't great, and you sell.
Hill: It went public four years ago, and today it's the fifth largest public company in the world.
Gross: So, you're saying it's going well?
Hill: So far, it appears to be going well. [laughs]
Fischer: Chris, I'll add that margins at Facebook are larger than Google's were when it was this size in 2008, and much higher than Alphabet right now. Three million businesses advertise on Facebook, but there are more than 50 million businesses with an active Facebook page, so, much more room to grow there. And like Amazon, the P/E is in the mid-30s on the estimated earnings a year out. The company's growing much more quickly than that, so the price still looks reasonable.