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After a slow start in the first year since its IPO, Facebook, Inc. (NASDAQ: FB) became one of the biggest companies in the world. It has recently reached its all-time high of $218.62, which equals the market cap of more than $600 billion.
But its road to $1 trillion became bumpy as it lost 20 percent after its latest earnings and it returned to the market cap of around $500 billion.
Quick Look: Buying Facebook Stock
- Step 1: Choose how much you want to invest.
- Step 2: Pick a broker.
- Step 3: Fund your account in order to begin trading.
- Step 4: Purchase the amount of stock you want to add to your portfolio.
Facebook at a Glance
Currently, Facebook has over 2.2 billion active users and to reach this number, it was necessary to add new features. Here are some of Facebook’s major features:
- Profile: Allows you to build a personal account, attach a profile photo etc.
- Friends: Allows users to connect with other users.
- The Wall: It was available since its starting point and in the beginning it allowed users to post text only. In 2007, it became possible to attach pictures and videos.
- Personal messaging: One of the key features, it allows you to message your Facebook friends.
- Notes: Created for writing blogs.
- News Feed: Shows updates of your friends’ activity and news stories from pages you like.
- Like button: Allows users to show approval for certain content.
- Games: You can play various games on Facebook.
- Timeline: Introduced to replace the Wall.
- Graph Search: Allows you to search for specific things about your friends.
Acquisitions also contributed to Facebook’s success:
- WhatsApp: An instant messaging service acquired in 2014 for $19 billion.
- Oculus VR: A virtual reality company, acquired in 2014 for $2 billion.
- Instagram: Offers social networking and picture-sharing service. It was acquired in 2012 for $1 billion.
- LiveRail: Video startup, acquired in 2014 for $500 million.
- Atlas: A digital media measurement platform acquired in 2013 for $100 million.
History of Facebook
The success story started in a dorm at Harvard University in 2004. The company that we know today as Facebook was founded by Mark Zuckerberg, Eduardo Saverin, Dustin Moskovitz and Chris Hughes for their fellow Harvard students. They named it “The Facebook.” From its Harvard beginnings, it spread to the other U.S. universities and in 2005, it began to spread worldwide.
It took only 3 years for Facebook to reach 100 million users and since then it managed to show user growth every quarter. In 2012, we witnessed two important events for Facebook:
- It raised $16 billion through its IPO.
- It became the first social network with 1 billion users.
- The IPO price reached $38 per share, which set the valuation of the company at $104 billion.
The first year of trading was not great for Facebook. Its stock lost more than 50 percent of its initial valuation and it took more than a year to return above $100 billion. In 2015, it was already above $250 billion and in 2017, it crossed the $500 billion mark.
An investment of $1,000 in Facebook’s IPO at $38 would be worth $4,661.84 on August 27, 2018. Facebook has never paid any dividend to its shareholders, so it is not necessary to adjust the return for dividends.
Why Purchase Facebook Stock?
Pros of purchasing the stock:
- Double-digit top-line growth. The company grew sales from $27.6 billion in 2016 to $40.7 billion in 2017.
- Double-digit bottom line growth. Net income increased more than 50 percent, from $10.2 billion in 2016 to $15.9 billion in 2017.
- Managed to grow users each quarter since 2008 and it currently has more than $2.2 billion users.
- Investing in virtual reality, which could be the next big thing in the tech space (Oculus VR).
- Dominates social networking with Facebook.com, Instagram.com, Facebook Messenger and WhatsApp.
Cons of purchasing the stock:
- Concerns that it might be slowing down.
- Missed expectations on its 2Q earnings on July 25.
- Future profitability could be lower due to the company’s attempts to invest in content moderation to fight bad content like hate speech and nudity.
- Facebook plans to shift News Feed to interaction with friends instead of posts from brands and organizations.
- Concerns about the company’s handling of users’ privacy.
- Pays no dividend (this might change in the future).
How to Purchase Facebook
Facebook trades on NASDAQ and it is a part of the S&P 500 Index and most of the major technology ETFs. If you want to buy the individual stock, here are some guidelines:
Step 1: Determine the amount you wish to invest.
Before adding a stock to your portfolio, you should determine the percentage of your equity that you wish to commit to the purchase. Some investors have a few dominant stocks in their portfolio, while the others like to have more or less similar exposure to all individual stocks they own.
Step 2: Choose a broker.
If you don’t already have a broker, you can check out Benzinga’s picks for Best Online Brokerage. Here’s a short list of our picks:
Commissions and fees are not the only important considerations when looking for a broker. You should also have in mind speed of execution, customer service, platform, security and financial stability.
Step 3: Place your order.
You can place a buy order using your broker’s online platform. If you decide to place a limit order, you will have to fill in the number of shares you wish to buy and the limit price. This is the price you are willing to pay for the stock and since it is lower than the market price, the stock has to trade to your limit price to fill your order. With this type of order, you also need to set a duration of the order.
You can choose the day of or good-until-closed order. If you want to buy the stock immediately, you can choose a market order and your order will be filled at the ask price.
The consensus target price among the Wall Street analysts covering Facebook is around $205 and it indicates a potential upside of more than 15 percent. Apple (NASDAQ: AAPL) crossed the $1 billion market cap mark recently and if Facebook plays its cards right it might join the club. With its user base of 2.2 billion, it certainly has the potential to do so.
In the first year after the IPO, many investors were skeptical about Mark Zuckerberg’s ability to run Facebook, but he showed that he is more than capable. He is now facing some new challenges in form of growing concern about user privacy, the popularity of Facebook network, bad content, fake news and other issues.
In the recent quarterly earnings report, the company reported slowing user growth. It has also guided a decline in revenue growth rates and an increase in costs, which resulted in a sharp decline in the stock price.
When a stock trades sharply lower it is either a red flag or an opportunity to buy. It is not easy to figure this out, but if you are thinking about buying Facebook you should ask yourself how serious are the current concerns about the company’s business model, and does the current leadership have the right strategy to make Facebook even bigger?
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