Facebook's Stock Will Go Up, Says Zuckerberg
Facebook shares are down about 37% since the company went public in 2012. Meanwhile, the S&P 500 is up about 26% overall. That's quite a hit for Facebook investors. Though CEO Mark Zuckerberg is concerned, he still believes that in time Facebook stock will deliver value to shareholders.
Source: Engadget.
Well, Zuckerberg, you'd better get busy. The expectations are very, very high.
Business versus stock
Arguably, Facebook as a business has done extraordinarily well since the company went public. Revenue was up 37.8% in the company's first quarter. Plus, mobile advertising revenue now accounts for 30% of the company's revenue, up from virtually zero in 2011. This should alleviate the initial concerns investors had when the company went public about whether Facebook could monetize mobile.
So what's the problem? Expectations. Facebook went public with a stock price of $38, trading at 107 times its trailing-12-month earnings at the time. Expectations for the stock were nothing short of exorbitant.
Nevertheless, Zuckerberg was confident at Facebook's annual shareholder meeting:
We understand that a lot of people are disappointed in the performance of the stock, and we really are, too. It's our job here to build a great company that's going to not only achieve the mission, but bring a great financial return for all of our shareholders. We take that responsibility very seriously.
We have always taken a very long-term view of this. It's taken us nine years to build the network to where it is now.
We think that over time, we're building an asset and a network that's increasingly valuable in the world, and in the long term, we will create value for shareholders by doing that.
What will it take?
Unfortunately for Facebook investors, expectations for mind-boggling growth haven't been alleviated, even with the stock down 37%.
Using a 10% discount rate in a discounted-cash-flow analysis, Facebook's free-cash-flow growth over the next 10 years would have to look something like this scenario for the stock to be worth its current value at $24 per share:
Year | Growth Rate |
|---|---|
1 | 35% |
2 | 32.1% |
3 | 29.5% |
4 | 27.1% |
5 | 24.9% |
6 | 22.8% |
7 | 20.9% |
8 | 19.2% |
9 | 17.7% |
10 | 16.2% |
Is it possible?
With revenue up 38% from the year-ago quarter and with daily active users and monthly active users up 26% and 23%, respectively, the company is still growing fast. Furthermore, the company's success in mobile offers promising revenue in an age that seems to be trending increasingly more toward mobile devices.
Still, even with Zuckerberg's reaffirmed commitment to creating value for shareholders, Facebook is an expensive stock. If you're willing to buy shares, you'd better be a big believer in the company's long-term success.
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The article Facebook's Stock Will Go Up, Says Zuckerberg originally appeared on Fool.com.
Fool contributor Daniel Sparks has no position in any stocks mentioned. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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