A lot for investors to like about Facebook

Apps, ads and artificial intelligence keep the social media giant strong.

Ali Mogharabi 11 July, 2016 | 5:00PM
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Ali Mogharabi: Facebook is the largest social network with more than 1.6 billion monthly active users. The growth in users and user engagement, along with the valuable data that they generate, make Facebook attractive to advertisers. The combination of these assets and continuing growth in online advertising bodes well for Facebook, as the firm generates strong revenue growth, remains cash flow positive, and profitable.

Apps that keep users engaged with Facebook's ecosystem have helped increase users and user interaction. With more user interaction, more data is compiled and then used by Facebook and its advertising clients to launch online target ads.

We think Facebook is going to continue to benefit from more ad dollars being spent on online advertising, especially mobile and social network ads where Facebook is very well positioned.

The company is taking steps to further monetize its various apps, such as launching interactive video ads and chat bots. It is also applying artificial intelligence, and virtual and augmented reality technologies to various products, which we think can increase Facebook user engagement even more, driving more revenue growth from advertisers in the future.

Our fair value estimate for Facebook is $120 per share. While we remain confident in Facebook's stable and wide moat, we do recommend a wider margin of safety before investing, given that the shares are trading in 3-star territory.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Meta Platforms Inc Class A316.53 USD-1.09Rating

About Author

Ali Mogharabi

Ali Mogharabi  Ali Mogharabi is a senior equity analyst for Morningstar.

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