Facebook Stock Vs Microsoft: Tech stocks have defined the past decade. Just a handful of leading companies in this industry have pulled the entire S&P 500 up, despite political turmoil, a pandemic, and any number of other events that created economic uncertainty.
Their influence has been so profound that financial analysts have nicknamed the major players with these acronyms:
- FANG – Facebook, Amazon, Netflix, and Google (Alphabet)
- FAANG – Facebook, Amazon, Apple, Netflix, and Google (Alphabet)
- FAAMG – Facebook, Amazon, Apple, Microsoft, and Google (Alphabet)
Year-to-date, the S&P 500 has managed to rise 2 percent as of late September, which would have been impossible without the FANG/FAANG/FAAMG stocks. In fact, by one calculation, without the FAAMG stocks, the S&P 500 index would be down by 6 percent.
Facebook, Amazon, Apple, Microsoft, and Google (Alphabet) make up 25 percent of the S&P 500’s market cap, which is perhaps no surprise now that four of the five have passed the $1 trillion mark.
- Facebook – $725 billion
- Amazon – $1.6 trillion
- Apple – $1.9 trillion
- Microsoft – $1.6 trillion
- Google (Alphabet) – $980 billion
Some investors are concerned that the pace of tech’s growth can’t possibly continue, while others want to buy in so they can be a part of these companies’ future profits.
Choosing which of the five makes the best addition to a balanced portfolio can be a tough task. The best way to make a confident decision is to compare them two at a time.
With that strategy in mind, the question is, Facebook stock vs Microsoft: which is best?
Facebook Market Cap Is The Last To Hit $1 Trillion…
Of the five massive FAAMG companies, Facebook is the only one that hasn’t hit a $1 trillion market cap.
However, that is no reason to discount the top social media platform. Since the start of 2018, it is up 44 percent, and share prices have increased 94 percent since January 2019.
Year-to-date, Facebook has gained 24 percent. Some believe those figures would be higher but for some unpleasant attention from the US government, the EU government, and the Australian government.
This less-than-stellar (but still impressive) performance is widely believed to be a short-term issue for Facebook, as the company generates revenues from advertising.
Generally speaking, online advertising has been down across the board as businesses balance the complexities of a COVID economy. As the pandemic is brought under control and the economy normalizes, Facebook’s advertising revenue is likely to meet or exceed previous levels.
Remember, among social media platforms, Facebook has a commanding lead when it comes to monthly active users. When Facebook-owned Instagram and Snapchat are considered, there are more than 2.7 billion people logging in once a month – and 1.79 billion of those log in almost every single day. That’s exceptionally attractive to advertisers, who can target ads to the most narrow of niche demographics.
Meanwhile, Facebook is heavily invested in leading the industry through new, more exciting technology. Among other projects, business leaders are focused on virtual reality (VR) and augmented reality (AR). That is likely to be the company’s true growth driver beginning in 2021.
Facebook’s slightly muted 2020 performance may actually be good news for investors, as it is an opportunity to buy shares at a discount. Overall, given the company’s ability to adapt and innovate, Facebook remains a solid buy.
Regulatory Threats Are A Risk For Facebook Stock
The biggest risks facing Facebook and its investors have and will continue to come from governments around the world.
In recent years, the company has faced difficult questions around privacy breaches, election interference, and violation of antitrust regulations.
There is a strong possibility that the US Federal Trade Commission will move forward with an antitrust lawsuit, which theoretically could force Facebook to divest WhatsApp, Instagram, and/or Messenger.
Such a lawsuit would take years of litigation before reaching a resolution, but in the meantime, it could require Facebook to pause in its efforts to integrate the platforms.
In addition to being disappointing for users, such a delay would prevent Facebook from realizing the savings associated with eliminating redundancies.
The European Union has concerns of its own that could lead to problems for Facebook down the road. Among other things, there are questions around the transfer of user information between countries. Specifically, the EU is considering whether Facebook’s data collection and sharing methods expose EU citizens to surveillance by the US government.
As these regulatory concerns move through various stages, it’s possible that there will be an impact on Facebook’s stock. However, the consensus is that long-term, Facebook and its shareholders will come out on top.
Microsoft Gross Margins Are (Astonishingly) Rising
When Bill Gates launched Microsoft in 1975, the idea of a personal computer was incomprehensible. However, Gates built an operating system that made PCs possible as early as 1981.
The company went public in 1986, and by 1987, Gates was the youngest billionaire in the world. Those that invested early enjoyed a share of the massive profits.
Since those early days, Microsoft has continued its extraordinary growth, hitting a market cap of $1 trillion in 2019.
Today, it is valued around $1.6 trillion, up 152 percent since the start of 2018. Since the beginning of 2019, Microsoft is up 116 percent, and year-to-date it has grown by 33 percent.
By all measures, the pandemic has had no negative impact, particularly since so many schools and businesses have abruptly transitioned to a virtual model. Among other things, demand for services from Microsoft’s Azure cloud platform have risen significantly..
One of the biggest advantages Microsoft has against its peers is its smooth transition to subscription-based services. Its universally-popular Office suite now brings in steady revenue, as does its wildly successful X-Box Game Pass. Thanks to its subscription-based model, Microsoft has improved its gross operating margin significantly. In 2016, that figure was 64 percent. Today, it’s approaching 68 percent.
Essentially, Microsoft has multiple successful companies under its large umbrella, and clearly, business leaders are feeling confident about the future.
While other companies are reducing or eliminating 2020 dividends, Microsoft announced a 9.8 percent increase. Combined, these factors make Microsoft stock a strong buy.
Dangers of Buying Microsoft
Perhaps the most remarkable thing about Microsoft is that it doesn’t have any company-specific issues that should worry investors.
Despite its size, regulators haven’t indicated any concerns, and it’s at the top of its game when it comes to technological success.
Certainly, shares are a bit pricey, but not unexpectedly so given growth prospects. All in all, the consensus among analysts is that any drop in share value will be part of a larger economic storm – if Microsoft is, in fact, impacted at all.
Microsoft vs. Facebook Stock: The Bottom Line
Facebook is a smart buy, but there is room for volatility as the company works through its regulatory issues.
That – and the fact that it doesn’t pay a dividend – gives Microsoft the advantage in this matchup.
In other words, when it comes to a decision between Facebook vs Microsoft stock, the winner is solidly Microsoft.
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.