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So in this video here we’re gonna be talking about facebook stock and my top three reasons why you would be considering investing in this stock at this point in time now i’ve been bullish on facebook stock for quite some time i started buying shares of this company after the cambridge analytical scandal and i also picked up more shares after the recent sell-off and
If you guys are in my private stock market community stock radar you get to see my real stock portfolio and you know exactly what i’m investing in and when i am buying that so that is when i started adding facebook stock primarily during those two sell offs and that’s kind of my favorite time to be picking up shares is when there is what i believe to be unjustified
Pessimism surrounding that stock but the first thing i want to do is just cover a brief history of what’s been going on with facebook stock in the beginning to middle of 2018 so first of all from mid-march to the end of march we saw that facebook stock slid around 18% due to this cambridge analytic data scandal and that is when i initially started buying shares of
Facebook stock in the $150 range in my opinion i felt that this would not affect facebook at all it would be just some short-term bad press and it would blow over now what happened after that was something i never expected to see happen from april to the end of july facebook stock rallied over 42% it climbed over 42% in that timeframe and it’s what i would call an
Insane unsustainable rally with facebook stock i expected them to come back to the range they were trading in before cambridge analytic ah i did not expect them to be making all-time highs in two to three months after that so that was unbelievable to see that and in my opinion it was an unsustainable rally with facebook stock and then at the end of july facebook
Purported earnings and from the end of july to august facebook stocks slid 21% on a slight revenue miss and global daily active user miss and this really freaked out wall street as they were beginning to realize that a company the size of facebook cannot grow as faster they’ve grown previously one of the main reasons is because they’ve achieved market saturation
Where so many people know about the platform and are already using it it’s hard to find people that don’t already know about facebook and want to begin using facebook or the other social media platforms owned by facebook but i’ve heard a lot of people saying that they’re concerned about investing in facebook or they think this is a time to sell facebook and in my
Opinion i think this is at the exact opposite of that this is a good time to be loading up on shares of this company and now of course you guys need to do your own due diligence whenever you invest you know learn more about this company why they should want to invest in it but i want to give you guys my top three reasons why i’m personally invested in this stock
And i’m very bullish in the long term on facebook the number one reason why i’m investing in facebook is actually because of instagram i full-heartedly believe that instagram is going to be bigger than facebook in the next couple of years and i’ve even personally been investing quite a bit in that platform i’ve been building up my own personal page on instagram i
Purchased one of the largest investing instagram accounts out there and that’s just because personally i believe this is going to be a superior platform in the long run now a lot of people are saying wait a second doesn’t that mean facebook is going to go out of style it’s going to be the next myspace absolutely not and the reason for that is because facebook has
Become extremely popular with the older generation so i think that you’re gonna see the older generation sticking to what’s familiar they’re going to be sticking to facebook and you’re gonna see the younger generation if they haven’t already moving moreover and using instagram and this was even a conversation i had with some of my younger cousins a couple of weeks
Ago i asked them what’s hot right now what are people using and they’re saying okay snapchats not cool anymore instagram is where it’s app and you know facebook i don’t really like facebook anymore so if you ever want to get a good idea of what is going on as far as what’s cool and what’s not ask a high schooler because that is the group that determines what app
Is hot what app is everyone using how are you staying connected with your friends and right now instagram is winning for young people we know that snapchat made some huge mistakes with their platform updates and as a result more and more people moved over to instagram as they had that same ability to have the feature and pretty much everything else snapchat had
To offer so i don’t see snapchat going anywhere good from this point in time forward and i see nowhere but up for instagram to go in the next two to three years in terms of daily active users and the number of people using this platform so my prediction is that we’re going to see facebook pretty much be flat here in terms of their growth or have much slower growth
Going forward in terms of their daily active users and such but we’re gonna be seeing high growth with instagram for the next couple of years and sure you could be worried about the slowing growth of facebook but when facebook also owns the number two platform it’s a fact that i believe a lot of people overlooked and the other thing you have to realize with instagram
Is that there are so many different ways they could be making money with that platform they could follow what youtube is doing and google is doing and have pre-roll ads involved in the instagram videos or they could be doing ads inside the messenger there are so many different ways they could do ads within the stories but you know what they’re not doing it yet and
It means if they want to make more money going forward all they have to do is turn the dial and all of a sudden they’re putting ads on the stories of instagram or ads inside the messaging on instagram or ads before videos and next thing you know they’re making billions and billions of dollars off that app so there is so much untapped potential with instagram right
Now that is being overlooked by people that are afraid of investing in facebook simply because of the numbers they’ve seen in that most recent earnings report and i am incredibly bullish on facebook just because of instagram alone now the second reason i like facebook as an investment is due to the valuation when you actually take a look at the valuation of these
Shares and what i’m going to be doing is comparing it to their main competitor which is google so when it comes to digital advertising there are two companies that are absolutely dominating this space it is facebook and it is also google and maybe you’re gonna have some others creeping in there i’m sure amazon is going to be creeping in as far as digital advertising
Goes but for the time being google and facebook own this space so according to emarketer the u.s. digital advertising market share between google and facebook is that combined fifty six point eight percent of the market so they are absolutely dominating this space so if you bullish on digital advertising if you’re bullish on new media then you would be interested
In one of these two companies either facebook or google and so when you actually sit down and look at the valuation of these shares you can see that facebook is not nearly as expensive as google stock so first of all looking at the price to earnings ratio the price to earnings ratio for facebook is a 25.4 compared to a 33.7 for google looking at the forward p/e we
See facebook comes in at a 22 while google comes in at a 26 and looking at that price to earnings to growth ratio facebook comes in at a 1.2 while google comes in at a 1.7 now do i believe in both of these companies absolutely i’ve owned google shares in the past i’m sure i will own this stock again in the future but if you’re looking at these two companies if you
Want to be involved in digital advertising you’re gonna want facebook or google in between the two of them right now i think you can get facebook stock at a bargain and the other thing about digital advertising that we have to mention here is that digital advertising is still tiny and we just now in 2017 reached the tipping point where finally digital ad spending was
More than spending on tv advertisements so according to magna which is an independent researcher digital advertising beat tv advertising for the first time in 2017 and it came in at 209 billion dollars for global digital advertising spending or 41% of the market and 178 billion dollars was spent globally on television advertising at 35 percent of the market now where
Do you guys think this is gonna go from here do you think next year in 2018 tv advertising is going to go through the roof and digital advertising is going to bottom out absolutely not we’re going to see tv advertising continue to taper off while digital advertising continues to climb and if we understand the basics of supply and demand here when you have more and
More people looking to advertise to the same customer base you’re going to see those ad rates climb higher and higher and as those ad rates climb you’re going to see companies like facebook and google making more and more money for that advertising space so more and more people are going to be switching to digital advertising and social media advertising and moving
Away from traditional advertising like magazines and television and radio and all of that money is going to be coming over to facebook and google and whoever else is going to become the third and fourth player of the digital advertising space and then my third reason for investing in facebook just comes down to the fundamentals and looking at the balance sheet google
And facebook both have wonderful balance sheets here in terms of their financial strength and i want to go ahead and highlight some of the key points here from facebook’s balance sheet and why i’m invested in them as a fundamental investor so as of their quarter to 2018 earnings report facebook has eleven point five billion dollars in cash and cash equivalents and
The other thing that’s amazing about facebook is that this is a company with zero dollars in inventory they’re not selling anything they don’t have any products they don’t have warehouses out there full of inventory waiting to sell it sitting on inventory there it’s such a lean business for them because they have no inventory they’re not sitting on products they’re
Just offering advertisement space and making money from advertisers so it’s a super lean business and that is what i love about it the other thing is that they have zero dollars in long-term debt there are not a lot of companies out there that you can say have no debt in terms of their long-term debt now yes they do have some debt that is owed in the next 12 months
As terms of short-term debt but they have zero dollars in long-term debt and the number one thing that determines the financial health of a company is their debt load and i always pay attention to the debt load of a company when i’m investing in them because maybe things are great for a company right now if they have a sizable debt load they’re making tons of money
They’re acquiring companies left and right but it’s working for them right now well as soon as we see the economy retract and we see that turnaround for them next thing you know they’re paying interest on that debt and that begins to burden them and they are in poor financial health the number-one thing that’s going to help a company in a poor financial time or
A poor economy is having a boatload of cash and having very little debt and facebook hits both of those marks for me again looking at the balance sheet here facebook has 90 billion roughly ninety billion dollars in assets and 11 billion dollars in liabilities and so to put that into context here for every dollar that facebook owes they have over eight dollars in
Assets so think about that if that was you if this was your personal situation maybe you had a thousand dollars on a credit card but you had over eight thousand dollars in assets to back that up and you also have enough cash on hand to pay off all of your debts tomorrow that is the exact situation that facebook is in here they have eleven point five billion dollars
In cash and cash equivalents and they have 11 billion dollars in liabilities so they have enough money to pay off all of their debts and have five hundred million dollars sitting there left over that is a fantastic situation to be in so facebook and google both have very strong balance sheets but when you compare the valuation of these two stocks i’m leaning towards
Facebook at this point in time but anyways guys that’s gonna wrap up this video this is why i’m an investor in facebook stock this is why i’m bullish on the stock at this point in time i would love to hear what you guys think down in the comment section below whether you are investing in facebook or you don’t like this stock let me know either way but thank you
Guys so much for watching this video and i hope you have a great rest of your day if you are interested in learning more about investing in the stock market i’ve created a free course just for you the link is in the description below here are a few other videos you might enjoy as well
Transcribed from video
Why I Am Buying Facebook Stock (Should You?) By Ryan Scribner