FACEBOOK: FUNDAMENTAL ANALYSIS + PRICE ACTION + NEXT TARGET ⚡️
It's no secret that social media giant Facebook generates an incredible volume of free cash flow. Even following covering all of its expenses, the company makes so much money that it still has enough to spend on stock buybacks and other shareholder-friendly expenses. That's why the business's free cash flow is expected to continue to grow - and why this is excellent news for shareholders.
Facebook generates the biggest part of its capital from selling advertising on its social networks -- and, as per the company, it's doing better than ever. The economy is growing, and more and more advertisers are struggling for ad space around the same limited number of user-targeted keywords. This growing demand allows Facebook to charge more to sell ads and, as a result, generate revenue.
In its Q2 2021 results, Facebook's CFO reported that the average price per ad increased 47% in Q2 and 30% in Q1. The total number of ads sold was up 6% year over year in Q2 and 12% in Q1 - meaning that the company is getting most of its sales growth from the increase in price per ad, rather than from the increase in the total number of ads sold. The CFO expects higher ad prices to boost Facebook's ad revenue for the rest of the year.
And as Facebook's revenue grows, so does its free cash flow.FB has constantly converted about 30 percent of its revenue into free cash flow over the past four quarters.
Facebook can generate such a high level of free cash flow because the company's internal operating margins are very high. For every new ad it accepts, it incurs minimal additional costs.
That indicates that 30% of all new ad sales go directly into the company's cash profits.
This increase in free cash flow helped the company increase its stock repurchases from $1.4 billion in last year's quarter to $7.1 billion in the most recent quarter. And both have fueled investor confidence in the company, causing the Facebook stock to rise about 40 percent over the past year.
Analysts expect Facebook's revenue to be $119.53 billion in 2021, up 14% from $104.79 billion last year. By 2022, they expect further growth of 19.1% to $142.44 billion in 2022.
Investors will keep an eye on these free cash flow numbers and use them to decide how much they are ready to pay for the Facebook stock. As of the moment of writing, the company has a market value of just over $1 trillion and 12 months of free cash flow of $32.17 billion, which means a price to free cash flow ratio of about 32.7. If that figure simply holds over a subsequent couple of years, the company's FCF forecast for 2022 of $42.73 billion would imply a target market capitalization of nearly $1.4 trillion -- up more than 30% from today's price.
Facebook is likely to announce third-quarter results before the end of October. If the company continues to report tremendous growth in ad revenue, as it has over the past few quarters, we can expect free cash flow to continue to rise. Facebook stock has shown significant growth in the past year, but additional free cash flow growth could continue to fuel that growth. If that happens, investors should have no qualms about continuing to build up their positions on Facebook or opening new ones.
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Facebook generates the biggest part of its capital from selling advertising on its social networks -- and, as per the company, it's doing better than ever. The economy is growing, and more and more advertisers are struggling for ad space around the same limited number of user-targeted keywords. This growing demand allows Facebook to charge more to sell ads and, as a result, generate revenue.
In its Q2 2021 results, Facebook's CFO reported that the average price per ad increased 47% in Q2 and 30% in Q1. The total number of ads sold was up 6% year over year in Q2 and 12% in Q1 - meaning that the company is getting most of its sales growth from the increase in price per ad, rather than from the increase in the total number of ads sold. The CFO expects higher ad prices to boost Facebook's ad revenue for the rest of the year.
And as Facebook's revenue grows, so does its free cash flow.FB has constantly converted about 30 percent of its revenue into free cash flow over the past four quarters.
Facebook can generate such a high level of free cash flow because the company's internal operating margins are very high. For every new ad it accepts, it incurs minimal additional costs.
That indicates that 30% of all new ad sales go directly into the company's cash profits.
This increase in free cash flow helped the company increase its stock repurchases from $1.4 billion in last year's quarter to $7.1 billion in the most recent quarter. And both have fueled investor confidence in the company, causing the Facebook stock to rise about 40 percent over the past year.
Analysts expect Facebook's revenue to be $119.53 billion in 2021, up 14% from $104.79 billion last year. By 2022, they expect further growth of 19.1% to $142.44 billion in 2022.
Investors will keep an eye on these free cash flow numbers and use them to decide how much they are ready to pay for the Facebook stock. As of the moment of writing, the company has a market value of just over $1 trillion and 12 months of free cash flow of $32.17 billion, which means a price to free cash flow ratio of about 32.7. If that figure simply holds over a subsequent couple of years, the company's FCF forecast for 2022 of $42.73 billion would imply a target market capitalization of nearly $1.4 trillion -- up more than 30% from today's price.
Facebook is likely to announce third-quarter results before the end of October. If the company continues to report tremendous growth in ad revenue, as it has over the past few quarters, we can expect free cash flow to continue to rise. Facebook stock has shown significant growth in the past year, but additional free cash flow growth could continue to fuel that growth. If that happens, investors should have no qualms about continuing to build up their positions on Facebook or opening new ones.
Check the Links on BIO and If you LIKE this analysis, Please support our Idea by hitting the LIKE 👍 button
Traders, if you like this idea or have your own opinion about it, please write your own in the comment box . We will be glad for this.
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