Stock of the Day Facebook

Facebook experienced a phenomenal 2017. No matter which way you look at it Facebook’s performance last year was exceptional. The price of Facebook shares surged 53% and could well continue to charge higher in 2018. Below we have outlined a few reasons to be bullish on Facebook this year. 

Ad rate increase 

With earning season just round the corner, Facebook could be expected to do better than forecast thanks to its potential to increase ad rates. Facebook ads are not only cheap, but they also work, meaning the social media giant is in a position to increase ad rates and grow revenue substantially. 

Facebook ad costs per thousand impressions can be as low as $2 dollars, when compared to more traditional media such as TV, where ad costs are around $20, the difference is noteworthy. 

Regulation 

Overall tech experts believe that the regulatory interference could actually be less than expected this year. There had been some fears that regulators would try to clamp on Facebook, but these are now waning. The belief is the industry will put in place proactive changes which will make void the need for additional imposed regulation. Going forward any suggestions of further regulation could cause temporary pull back in the share price and create buying opportunities. 

Video business 

Facebook is investing heavily to boost its video business. Currently video is reaching near a third of the company’s business and further strong growth is expected this year and investment in the area increases. 

Financials 

Facebook is a financial powerhouse. It has close to $16 billion in annual free cash and more than $38 billion on its balance sheet. This huge cash hoard could potentially make this the first FAANG to pay out a dividend. Although this is complete speculation and there have been no reports to suggest this could happened soon. Looking at valuations such as Price to earning ratios and price to earning to growth ratios, Facebook could be considered a bargain even at today’s levels after rallying over 50% across last year. In short Facebook has extreme financial strength and remains attractively priced. 

Technicals 

Facebook closed down 0.2% in the previous session and is trading down a further 1% in premarket trading today. Given that Facebook is trading above both its 20 SMA and 100 SMA, whilst technical indicators also pint to a strong buy, the current pullback could be a good buying opportunity.