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Facebook (FB) a Strong Buy Despite Lower Original Sharing

On Apr 11, 2016, Zacks Investment Research upgraded Facebook, Inc. FB to a Zacks Rank #1 (Strong Buy). Going by the Zacks model, companies holding a Zacks Rank #1 have strong chances of outperforming the broader market over the next few quarters.

Of late, there have been concerns regarding declining “original sharing” on Facebook news feed. But even then the company has placed itself quite well in a number of booming markets, which outweigh the risks in our view. 

Why the Upgrade?

Facebook is not only the most popular social media platform but it has gained significant traction in its mobile ad business within a very short span of time. This combined with its massive user base (1.6 million) and its ability to track personal details over time, make it a formidable force in the online ad market.

In addition, the company is seeing strength (and even monetizing potential) in its subsidiaries like Instagram, Whatsapp, Messenger and Oculus, which are expected to open many more growth avenues for the company going ahead. The company recently started shipping its much-awaited Oculus Rift, a virtual reality (VR) headset. The AR/VR Market, which is at a nascent stage at present, is expected to gain solid traction going ahead and Facebook is placing itself quite well to benefit from it.  In addition, we expect Facebook to reap significant gains from its efforts to develop Artificial Intelligence solutions over the long run.

Moreover, one should also keep in mind the company’s efforts to expand its ad revenues. For quite a while, Facebook is working to develop its video ads especially with more focus on live video streaming. Video ads conventionally generate more revenues than their photo and text based counterparts. But live streaming can be much more lucrative for the company especially if we keep in mind the impressive views it gets.

Most importantly, the company is consistently working to expand its user base further (its most important strength) by focusing on untapped emerging nations like India and others. Also, Facebook is devising new ways to address the issue of declining original sharing and has already got a dedicated team on board for the purpose.

Meanwhile, increasing expenses and stiffening competition from other major players like Alphabet GOOGL and Twitter TWTR can pose some challenges for the company.

Another Stock to Consider

A stock worth consideration in the technology sector is Etsy, Inc. ETSY which also sports a Zacks Rank #1.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
FACEBOOK INC-A (FB): Free Stock Analysis Report
ALPHABET INC-A (GOOGL): Free Stock Analysis Report
ETSY INC (ETSY): Free Stock Analysis Report
TWITTER INC (TWTR): Free Stock Analysis Report
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