FAANG, as an aggregate, has been underperforming the broader market over the past 52-weeks with only one stock illustrating positive returns. Over the past 12 months, Netflix NFLX shares lost 19.4%, Amazon AMZN is down 10.5%, Apple AAPL shares fell 7.7%, and Alphabet GOOGL is down 4.7%. Facebook FB, the one bright spot in FAANG, has been able to return shareholders 3.9% in the last 52-weeks.
Why have the treasured FAANG stocks been lagging in recent months of trading? Has the growth stopped, is this just function of valuation or can the recent soft performance be understood on an individual basis?
I discussed a couple of FAANG stocks that appear to have some fundamental flaws in my article Is FAANG Losing Its Allure? Below I’m going to discuss the strongest FAANG stock over the past 52-weeks and if it has the aptitude to continue its drive.
Facebook has illustrated an unprecedented topline growth averaging over 50% year-over-year, and never falling under 26% quarterly expansion since FB went public 7 years ago. Analysts are expecting the company to expand its revenue by 26% and 22% this year and next, respectively.
Facebooks user growth appears to know no end with relentless quarter-over-quarter improvements in monthly active users (MAUs). There are currently over 2.4 billion humans who use Facebook on a monthly basis, and this doesn’t include its other portfolio services like Instagram, WhatsApp, Oculus. This means that over 50% of the internet accessing world check their Facebook account at least once a month. If Instagram and WhatsApp were added to this figure, the penetration would be closer to 100%.
User growth is soon going to be a product of world population growth, but this is not going to slow the firm’s growth. The company has been able to increase average revenue per user (ARPU) year-over-year consistently.
Now Facebook is preparing to take a plunge into the financial market with its development of a cryptocurrency. Facebook is partnering with 28 other firms ranging from financial service companies like MasterCard MA and Visa V to ride-sharing firms like Uber UBER and Lyft LYFT in the Libra Association.
Libra is going to be quite different from other cryptocurrencies for several reasons. One, it’s not entirely decentralized, it puts its confidence in the 28 accredited members of the Libra Association who will act as the “central bank” of the coin. This will hinder illegal activity with the currency. Libra is also going to be backed by a basket of currencies and US treasuries making it a “stable-coin”. Being asset-backed, Libra won’t have the volatility of bitcoin or ethereum, and owners will have the comfort of being backed by real assets.
This project could be a very profitable endeavor for FB if it can properly execute its new digital wallet for Libra, Calibra. This wallet will be available to anyone with an internet connection. Libra will be accessible in Facebook Messenger, WhatsApp, and as a standalone app.
Facebook, Facebook Messenger, and WhatsApp are the top three downloaded smartphone apps giving this financial services access and tremendously large consumer base right out of the gates. Libra could become the international currency that changes the financial markets.
FB’s forward P/E has dropped substantially over the last 5 years, from its high of 61x in 2015 to the 21.5x that it is trading at today. This is an inevitable trend as the firm matures and the excessive growth decelerates. If Libra takes off globally when it is released next year, I am confident that FB will be thrown right back into high growth multiples.
If you are a believer in Facebooks stable-coin, Libra, FB is a buy right now. Libra aside, FB still has a convincing narrative with reasonable multiples. It continues to prove me wrong about its ability to see relentless user growth, and I am done fighting the trend.
FB has run up over 40% in 2019 so far, but it is still over 15% off its 2018 highs. If Facebook can avoid any further regulatory run-ins and it can continue its consistent ARPU growth, I am certain that it will make new highs.
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Netflix, Inc. (NFLX) : Free Stock Analysis Report
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
Facebook, Inc. (FB) : Free Stock Analysis Report
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
Apple Inc. (AAPL) : Free Stock Analysis Report
Mastercard Incorporated (MA) : Free Stock Analysis Report
Visa Inc. (V) : Free Stock Analysis Report
Lyft, Inc. (LYFT) : Free Stock Analysis Report
Uber Technologies, Inc. (UBER) : Free Stock Analysis Report
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