Facebook Stock Forecast: Upside Surprise

Facebook Stock Forecast 5 Years: The Facebook leadership team could not have predicted a global pandemic would send people home for more than a year. However, when it happened, the company stepped up to fill the void left by the absence of in-person socialization and entertainment. 

Facebook kept people connected through social media pages, private messages, and video chats. More importantly, the platform positioned itself as a reliable source of COVID-related news – a sorely needed service in a sea of misinformation. 

As a result of its rapid response to the new world created by COVID-19, Facebook attracted more users and grew its revenue faster than anyone thought was possible. Total 2020 revenue came in just under $86 billion – a healthy 22 percent increase over the previous year’s $70.7 billion.

The change in net income is even more impressive. That figure topped $29 billion for 2020. Compare that to 2019’s $18.5 billion – the year-over-year increase is 58 percent. 

The problem is that the world is likely to be a much different place by the second half of 2021. More to the point, by late summer, daily life will once again resemble its pre-pandemic state. What does that mean for Facebook?

Can it maintain its 2020 advances? Is there any chance it can deliver the same strong revenue and income growth when consumers are able to fearlessly leave their homes again? 

Analysts haven’t said that Facebook will repeat 2020’s success, but they have hinted that investors won’t see a massive drop. The “Facebook stock forecast 5 years” includes an upside surprise that speaks to the company’s robust growth strategy. 

Facebook “Other Revenue” Growth Is Astonishing

There are two things everyone knows about Facebook. First, it is the most popular social media platform in the world. By the end of 2020, the company boasted 2.8 billion monthly active users (MAUs).

To be clear, that’s more than a third of the total world population. Second, Facebook is free, which begs the question – how does Facebook make money? 

The answer is straightforward. Facebook doesn’t charge consumers to use the platform because user data is Facebook’s real product.

All of those personal details, in addition to app and internet habits, make Facebook’s ability to target advertising exceptionally precise. That’s extremely valuable to marketers representing millions of businesses around the world. 

Facebook’s advertising sales make up the lion’s share of its revenue – for now. In 2020, $84 billion of the $86 billion total revenue was attributed to advertising, with just $2 billion falling into the “Other” category. 

The “Other” revenue is minute when compared to advertising sales, so it is easy to overlook. However, the year-over-year increase in Facebook’s “Other” revenue is astonishing. From 2019 to 2020, “Other” revenue grew by 72 percent, which means expanded offerings and new products are starting to generate cash.

Given the challenges Facebook faces on the advertising side, this sudden attention to alternative sources of revenue could have a dramatic impact on the company’s future growth. 

Facebook Is Asset Rich

The interesting thing about tech companies is that, in many cases, their services are intangible. They offer convenience, community, and communication rather than a product that consumers can feel and touch.

Though there is no physical product, these companies become integrated into consumers’ day-to-day lives. As users share their information within the platforms, tech companies quietly collect, compile, and analyze it. The ones that do this most effectively are leaders in their respective niche of the tech industry. 

Facebook is asset-rich, but perhaps not in the traditional sense. Yes, it is a massive corporation that controls some of the most valuable brands in the world: Facebook, Facebook Messenger, WhatsApp, and Instagram. However, the combination of these platforms is more valuable than each as an individual – particularly when it comes to consumer data. 

Facebook’s ecosystem works to expand and enhance users’ experience by allowing seamless transitioning from one platform to the next. As relationships expand, the company collects more data, making it more popular with advertisers.

Then the cycle starts over.

Along the way, Facebook continues to add advanced features and innovative experiences that further encourage consumers to live in the Facebook universe. 

Will Facebook Stock Go Up?

Given the challenges that Facebook will encounter in 2021 – competition from Apple and a return to pre-pandemic lifestyles, among others – many investors wonder, will Facebook stock go up?

It doesn’t seem likely if the company relies on the factors that created last year’s unprecedented success. However, those who follow Facebook carefully know that the company isn’t resting on historical accomplishments. It is hard at work on new services that will generate new sources of revenue. Specifically, the ones that currently fall under the heading of “Other”. 

One of Facebook’s most interesting acquisitions dates back to 2014. Facebook acquired the virtual reality company Oculus for $2.3 billion (cash and stock). At the time, many industry experts and analysts were a bit puzzled. No one was quite sure what Facebook planned to do with its new business. 

The company’s strategy has become far more clear in recent months. Facebook is rapidly developing the capabilities of Oculus technology, and that, too, will be integrated with the rest of Facebook’s social media platforms.

In a recent earnings call, Founder and CEO Mark Zuckerberg explained that Facebook’s virtual reality and augmented reality goals go far beyond anything Oculus is capable of today. 

The company’s virtual reality and augmented reality division, Facebook Reality Labs, is working towards an affordable immersive computing platform that “delivers a magical sense of presence” when people can’t be together in-person.

Already, the company has released Quest 2 – an instant hit with consumers – and it is working on advancing the technology as quickly as possible to bring it into the mainstream. 

It is this sort of innovation that will keep Facebook on top – and that bodes well for the continued growth of Facebook stock. 

Is It Too Late To Buy Facebook?

So, that leaves one more important question. Is it too late to invest in Facebook? The most recent earnings report was so positive that share prices immediately jumped up, and the company’s price-to-earnings ratio has been over 25 for some time. Does that mean new investors are unlikely to realize returns? 

Most analysts agree that it’s not too late to buy Facebook stock. Yes, the P/E ratio might be a touch high at first glance. However, when the company’s historical growth is considered along with the probability of continued strong performance, there is every reason to believe that Facebook stock is as much a buy today as it ever was. 

Facebook Stock Forecast: Upside Surprise

The bottom line is that there has been some angst in investing circles about Facebook’s dependence on advertising revenue. That angst has been even more pronounced since Apple (AAPL) launched a feature allowing its users to prohibit tracking of their online activity. 

However, Facebook isn’t just giving up and settling for whatever data it can continue to collect. It is growing and expanding its entire ecosystem to make it even more appealing to consumers.

All signs point to the company’s continued success – a success that is bound to deliver returns for shareholders. That makes Facebook stock a buy. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.