Buying Facebook (1/16)

Facebook (FB) has a three-year annualized stock return above 40%, and management has proven their ability to adapt quickly. Since their IPO in 2012, Facebook has transitioned to a mobile platform, while completing various strategic acquisitions including InstagramWhatsApp and Oculus.

ETF PM currently has long positions in Facebook (FB). logo

Facebook Cranks Up Its Ad Machine

Shira Ovide, 1/27/16

What if I said you could increase your salary as much as you wanted? You’d probably think it was time to walk out on a pitch for a Ponzi scheme. 

Yet Facebook can actually grow as fast as it wants. 

Here’s the three-part playbook Facebook has used to advance from an infant public company in 2012 to the eighth-biggest company in the country by stock market value: People spend a lot more time on Facebook. Companies want to throw more money at Facebook to help find potential buyers for their stuff. Facebook is willing to shove more ads for that stuff at the users scrolling through photos of a cousin’s wedding or philosophical tomes about Kanye West’s latest feud. Check. Check. And check.

In the holy trinity of user growth, advertiser demand and number of ads, the biggest element in Facebook’s control is how many ads it lets users see — what the industry calls “ad load.” The big shift in the last few months was that Facebook cranked up the number of advertisements it showed on Instagram and continued to jam more ads in the online videos users increasingly gobble up on Facebook. Boy, is it working.

In the three months ended Dec. 31, revenue rose 52 percent compared with sales in the period a year earlier, the company said Wednesday. That was the fastest rate of revenue growth since the third quarter of 2014.

How many companies with $18 billion in yearly sales can increase revenue by more than 50 percent? None. No other company has done that recently, according to Bloomberg data. Wall Street darling Netflix has less than half the yearly revenue of Facebook, and its growth rate was 23 percent in the fourth quarter.

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