Recently Tom Lee, a well-known stock strategist changed his tune on Facebook stock (NASDAQ: FB), among others. He is now calling these stocks buys as he sees a lot of growth potential and as a result, a nice return for investors. Should you listen to him and invest your money in this stock or are you better off investing elsewhere?
Let’s look at Facebook in depth and see why he is right in suggesting you buy Facebook.
Who Is Tom Lee?
Tom Lee is a managing partner at Fundstrat Global Advisors. He is also the Head of Research as well. He has over 25 years experience in equity research and worked for both JP Morgan and Solomon Smith Barney before starting Fundstrat Global Advisors.
To traders, he is known as a big bull with his aggressive predictions for the market. And based on his research, has been ranked among the best equity researchers by Institutional Investor since 1998.
What Is Facebook?
Ask the average person about Facebook and they will tell you that the site is simply a place to share your news with friends and comment and enjoy on the things happening in your friends lives. But Facebook is much more than this.
In addition to user’s news feeds, Facebook offers a lot more. First, they have expanded into live video feeds. Now users can do live video for their friends to watch or comment on in the moment. Many small businesses and independent contractors are starting to use Facebook live as opposed to webinars since so many of their followers and fans are on the social media platform. It just makes it easier to broadcast and connect with each other.
Next, it is a playground for advertisers. With Facebook collecting so much personal data on its users, the advertisers looking to place ads and target consumers have a wealth of information. This allows them to hone in specifically on those people who are most likely to buy.
Third, we go back to Facebook live. It was just announced that Facebook is in talks to start streaming one Major League Baseball game per week this season. If this becomes a reality, it opens the door to more live streaming of sporting events.
Finally, the company is always adding new businesses to its portfolio to expand its reach. The most notable being Instagram.
Why I Am Buying Facebook (Even At These Levels)
There is a lot of opportunity with this investing in this stock. As they update and refine their algorithm, they will be better poised to offer even more valuable personal information on its users to advertisers. This will increase the demand to advertise on Facebook and at the same time, drive up revenues.
The only trick here is to keep user’s news feeds clutter free. Too many ads and they might go elsewhere. Too few and advertisers might not be happy with the results. It’s a fine line that the company is constantly navigating.
Another reason for the optimism is the potential move into live sports streaming. Many cable television subscribers want to cut the cord, but cannot due to their love for live sports. As Facebook and other firms ramp up their agreements with the major sporting leagues to stream live games, more people will choose to cut the cord and move over to sites that are able to live stream sporting events.
More eyeballs and users on Facebook leads to more advertising dollars. Even before the news of the talks with Major League Baseball, analysts were estimating a 36% increase in growth for fiscal year 2017 and 26% in fiscal year 2018. If the deal comes together with Major League Baseball, you can expect those estimates to increase.
Finally, more people are using Facebook each year:
- Daily active users (DAUs): increase of 18% year-over-year
- Mobile (DAUs): increase of 23% year-over-year
- Monthly active users (MAUs): increase of 17% year-over-year
- Mobile (MAUs): increase of 21% year-over-year
The fact is that Facebook isn’t going away. If it simply stuck to connecting people with each other, it would go the way of MySpace and another social media platform would replace it.
But the company is an innovator and is continually growing and expanding into new ventures to bring its users and advertisers the best experience possible.
Because of this, I agree with Mr. Lee and think Facebook is a buy.