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Facebook Inc Class A FB

Rating as of

Morningstar’s Analysis

Valuation
Currency in USD
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Is it the right time to buy or sell?
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1-Star Price

PREMIUM

5-Star Price

PREMIUM

Economic Moat

PREMIUM

Capital Allocation

PREMIUM

More Risks Are Already Priced Into Facebook Shares Which We Now View As Undervalued

Ali Mogharabi Senior Equity Analyst

Analyst Note

| Ali Mogharabi |

We are maintaining our $407 Facebook fair value estimate; after nearly a 5% decline on Oct. 4 the wide-moat firm is now trading in 4-star territory. The stock has been hit by many negative headlines regarding the firm’s policies, in addition to its main properties not working for a few hours. While the stock will likely remain under pressure from negative news (the outage impact will likely be negligible), we think Facebook’s network effect remains intact. We remain confident that while the firm’s user growth, engagement, and monetization may weaken somewhat, with nearly 3 billion monthly active users worldwide, a reversal of its platforms’ flywheel effect remains unlikely. In addition, while some large brands may abandon Facebook, we believe small and midsize businesses will continue to find Facebook’s properties one of the most efficient ways to reach consumers.

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Company Profile

Business Description

Facebook is the world’s largest online social network, with 2.5 billion monthly active users. Users engage with each other in different ways, exchanging messages and sharing news events, photos, and videos. On the video side, the firm is in the process of building a library of premium content and monetizing it via ads or subscription revenue. Facebook refers to this as Facebook Watch. The firm’s ecosystem consists mainly of the Facebook app, Instagram, Messenger, WhatsApp, and many features surrounding these products. Users can access Facebook on mobile devices and desktops. Advertising revenue represents more than 90% of the firm’s total revenue, with 50% coming from the U.S. and Canada and 25% from Europe. With gross margins above 80%, Facebook operates at a 30%-plus margin.

Contact
1601 Willow Road
Menlo Park, CA, 94025
T +1 650 543-4800
Sector Communication Services
Industry Internet Content & Information
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type Aggressive Growth
Employees 63,404

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