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Facebook Inc Class A FB

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Morningstar’s Analysis

Valuation
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1-Star Price

PREMIUM

5-Star Price

PREMIUM

Economic Moat

PREMIUM

Capital Allocation

PREMIUM

Facebook Posted Impressive Q2 results; 2H2021 Represents Tougher Comps; Increasing FVE to $407

Ali Mogharabi Senior Equity Analyst

Analyst Note

| Ali Mogharabi |

We are increasing our fair value estimate of Facebook to $407 from $390. The firm reported better than expected second quarter top- and bottom-line results driven by user growth and growing monetization. Economic recovery continues to drive higher ad spending, a big chunk of which is allocated to Facebook and its properties. We are pleased with Facebook’s continuing enhancement of its platforms as it improves e-commerce functionality, increases video content, and introduces more audio content, which support the firm’s network effect moat source on the user and advertiser sides, increasing overall ad inventory. Facebook is also investing in innovation for the long-run, including Metaverse, which we view as the next stage of growth and development in virtual reality. While Metaverse is likely to require more interoperability between many platforms and may slowly erode Facebook’s walled garden, the firm’s current network effect moat source should maintain more users on the Facebook side of the Metaverse.

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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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