FACEBOOK INC.

Business Summary

Facebook Inc. is an online social media and networking company listed on the Nasdaq Stock Market in the United States of America. 

It was famously founded by Mark Zuckerberg with the help from his friends, namely Eduardo Saverin, Andrew McCollum, Dustin Moskovitz and Chris Hughes. Originally launched as a website to profile all the students in Harvard University, it then slowly expanded to other universities. It wasn’t long then it slowly was opened to the public, for anyone above the age of 13 to be able to create their own Facebook profile.

The Facebook app has gone through multiple evolutions. It started from an online personal profile where everyone can create for free. By using Facebook and with the internet, people around the world can connect with each other. Family members and friends can view photos, statuses, updates of one another. In a nutshell, Facebook Inc. is a company that develops and own apps that connect people.

Facebook Inc. filed for IPO in the year 2012. At that time it was just a company that owns and operates the Facebook platform and app. Over the years, it has grown bigger by acquiring other companies and apps. You might have heard or seen these apps before, but could be unaware that they are under the Facebook family.

Facebook Inc. earns most, if not all of its revenue from selling advertisement placements to marketers. These ads can be filtered down to meet certain target criteria, including age, gender, location, interests, and behaviours. Marketers purchase ads that can appear in multiple places including on Facebook, Instagram, Messenger, and third-party applications and websites.

The Facebook 10 Year Growth Map

Last update: 20.02.2020

Dividends (0/5):

Value (4/5): ⭐ ⭐ ⭐ ⭐ 

Financials (5/5): ⭐ ⭐ ⭐ ⭐ ⭐ 

Growth (5/5): ⭐ ⭐ ⭐ ⭐ ⭐ 

Business (5/5): ⭐ ⭐ ⭐ ⭐ ⭐ 

Reference: (i) MyKayaPlus Metrics Definition (ii) MyKayaPlus Metric Evaluation Scale

Facebook Family of Apps & Technologies

  • Facebook: Facebook enables people to connect, share, discover, and communicate with each other on mobile devices and personal computers. There are a number of different ways to engage with people on Facebook, including News Feed, Stories, Marketplace, and Watch.
  • Instagram: Instagram brings people closer to the people and things they love. It is a place where people can express themselves through photos, videos, and private messaging, including through Instagram Feed and Stories, and explore their interests in businesses, creators and niche communities. 
  • Messenger: Messenger is a simple yet powerful messaging application for people to connect with friends, family, groups, and businesses across platforms and devices. 
  • WhatsApp: WhatsApp is a simple, reliable, and secure messaging application that is used by people and businesses around the world to communicate in a private way.
  • Oculus. Hardware, software, and developer ecosystem allow people around the world to come together and connect with each other through our Oculus virtual reality products.

Competitors

Even though the monetization of advertisement revenue is still relatively a new way of marketing over in the Asian region, Facebook Inc. is no stranger to competition in the ads segment. 

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Facebook’s Competitors

Notable competitors in the advertisement segments and videos are Google and YouTube. Messenger apps wise there are a handful of competitors which include Apple Messaging, Telegram. 

Image result for telegram line wechat

Over at the social media verticle, there is strong competition from TikTok and not to mention Twitter and Snapchat. 

Virtual Reality is also highly competitive, where there are a handful of startups and companies also venturing into the next phase of connectivity. 

Management

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Facebook Inc. Co-Founder, Chairman & CEO – Mark Zuckerberg

Facebook Inc. has one of the talented team put together. The Chairman and Chief Operating Officer is none other than Mark Zuckerberg. Zuckerberg remains the only founder that is currently involved as a director and management of Facebook Inc.

Sheryl Sandberg is the Chief Operating Officer of Facebook Inc. For the past 12 years, she has been with Facebook Inc. Prior to that, she has been Vice President of Google’s Online Sales and Operation for 6.5 years, and Chief of Staff at the United States Treasury Department.

Also worth mentioning is Chief Financial Officer Dave Wehner and Chief Technology Officer Mike Schroepfer, who both have been with the company for 7 years and 11 years respectively. 

Ownership wise, Mark Zuckerberg holds the highest amount of shares in Facebook Inc. giving him 53% shareholder rights. Co-founders Eduardo Saverin and Dustin Moskovitz also hold substantial amounts of shares respectively. 

Perhaps what is more interesting is that both the COO and CTO of Facebook Inc. also have a stake in the company. Sheryl Sandberg indirectly holds 1.35 million Class A shares through a trust and another 770,000 Class B shares, according to April 12, 2019, proxy statement. Michael Schroepfer comes in as Facebook’s sixth-largest shareholder. According to the company’s April 12, 2019, proxy statement, Schroepfer has a total of 960,583 Class A shares and no Class B shares.

This shows that the Management and board of directors have skin in the game, and would make decisions that would benefit the company and all of the shareholders.

Financial Performance

Facebook Inc. is a high growth and high potential company. As of the year 2019, it registered revenue of USD 71 billion. Net income attributable to shareholders was close to USD 19 billion. For the past 9 years, revenue grew at 38.74% CAGR, while net income expanded at a rate of 44.62% CAGR. 

Facebook Inc.’s business model is asset-light and highly scalable. After building a successful social media platform which has high public traffic, Facebook Inc. is able to monetize its platform by selling advertisement spaces to businesses. 

In fact, Facebook advertisement became much more efficient from conventional advertisements since it is able to track clicks and conversion. Businesses are now able to track the effectiveness of a particular advertisement and are able to get feedback on the style of ads to show and market. With all the data and metrics all readily available on a live update basis, it has certainly changed the advertising landscape.

A Facebook Business Page with all the metrics at a glance

Facebook Inc.’s Return on Assets and Equity has also been on an upward trend. Only in the year 2012 and 2019, there was a slight downward turn. As Facebook Inc. is still a growing tech company, cost of revenue and research and development will sometimes outgrow the revenue growth as the company prepares for future manpower requirement and technological breakthrough. The lower ROA and ROE in 2012 eventually trended upwards to a high 22% and 26% respectively in the year 2018. As for 2019’s ROA and ROE dip, it might be the preparation for the next frontier the company could be working on.

Balance Sheet

YearAssets (USD’000)Liabilities (USD’000)Equities (USD’000) Gearing Ratio
2019133,376,00032,322,000101,054,0000
201897,334,00013,207,00084,127,0000
201784,524,00010,177,00074,347,0000
201664,961,0005,767,00059,194,0000
201549,407,0005,189,00044,218,0000

Facebook Inc. has been increasing its assets at an accelerated rate. As of the year 2019, Facebook Inc. has an asset worth USD 133 billion. Retained earnings make up a huge chunk of the equities portion. The liabilities portion of Facebook Inc. worth USD 32 billion as of 2019 is majority payables. Hence, Facebook Inc. does not have any borrowings, which means it has a gearing ratio of 0.

Net Operating Cash Flow & Cash Position 

Source: FACEBOOK INC. ANNUAL REPORT

Facebook Inc. business brings in loads of cash. Net cash flow from its advertising business trends along with its explosive revenue growth. Even though Facebook Inc. has also increased its capital expenditure investments, its cash position at every year-end is still on an increasing trend.  

Facebook Inc. is not a dividend-paying company. So it creates returns to shareholders by doing share buybacks since dividends are taxable in the United States of America. 

 Price

Just like its business performance, the share price has grown from $38 per share to $217 as of writing, giving a total return of nearly 6 times. Online advertising has just slowly started to replace conventional advertising spaces, hence share price of Facebook Inc. would potentially go up higher should there is more adoption of advertising trends towards online.

MyKayaPlus Verdict

Facebook Inc. is one of the unicorn stocks of our century. The shrewd evolution from a social media company into an online advertising company has changed Facebook. Nonetheless, Facebook Inc.’s vision has never strayed away, which is to connect people and bring people closer.

Being a tech company that monopolizes and has such a huge user base, it is bound to invite some controversies. The data breach of the Cambridge Analytica scandal is proof that Facebook Inc. is not a perfect company. Data leak incidents will always be a risk when it comes to investing in tech companies which hold vital user details and information.

However, rather than being too focused on the downside risk and threats of being a Facebook shareholder, it is more important to also look at the potential Facebook can grow. Its social media user coverage is still increasing, and even Google’s G+ was unable to pose any significant challenge. 

There is definitely room for Facebook Inc. to grow further. But be always prepared for some regulatory challenges and risks it would encounter on the way to its growth.

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The information available in this article/report/analysis is for sharing and education purposes only. This is neither a recommendation to purchase or sell any of the shares, securities or other instruments mentioned; nor can it be treated as professional advice to buy, sell or take a position in any shares, securities or other instruments. If you need specific investment advice, please consult the relevant professional investment advice and/or for study or research only.
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