Facebook’s Stock Has Gained 70% Since 2017, Why?

by Trefis Team
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Facebook (NASDAQ:FB) saw its stock price rise by almost 70% over the last three years, from around $130 in February 2017 to over $220 recently. A significant jump in Total Revenue primarily drove this rise. Notably, the company’s stock price could have gained substantially more if its Net Income margin, as well as P/E Multiple, had also improved instead of declining over these last three years.

We break down the movement in Facebook’s stock price into four factors: growth in revenue, drop in net income margin, a slight increase in share count, and reduction of P/E multiple. View our interactive dashboard analysis What Factors Drove The 70% Growth In Facebook’s Stock In The Last 3 Years?

A] Revenue Growth

  • Facebook has seen significant growth of $43 billion in revenues over the last three years, with net revenue jumping from $27.6 billion in 2016 to $70.7 billion in 2019.
  • The growth primarily came from the advertising segment, which makes up more than 98% of Facebook’s total revenue.
  • Notably,  the United States and Europe contribute almost 70% of the company’s top line.

View the Trefis interactive dashboard on Facebook’s Revenues for more details on the company’s revenue segments and performance.

B] Net Income Margin Reduction

  • Facebook’s Net income margin reached 39.6% in 2018 but fell to 26.1% in 2019, primarily due to a $5.0 billion FTC settlement expense recorded in the first half of the year.
  • As a result, net income increased from $10.2 billion in 2016 to $22.1 billion in 2018 but fell to $18.5 billion in 2019.
  • Total expenses as a % of revenue saw a sharp increase in 2019 primarily due to the FTC settlement (included in General & Administrative expenses).
  • Notable changes can be seen in the effective tax rate and a steady increase in the cost of sales as a % of revenue.

C] Shares outstanding nearly flat

  • Facebook’s share count has remained largely level over the years.
  • EPS has increased steadily over the years from $3.49 in 2016 to $7.57 in 2018.
  • EPS fell in 2019 to $6.33 due to a sharp drop in net income, as explained above.

D] Reduction in P/E Multiple

  • Facebook’s P/E multiple reduced from 38x in 2016 to 34.3x in 2019.
  • Over the same period, Alphabet (Google’s parent company) saw its P/E multiple drop from 31.5x to 30.9x.

Despite the 70% growth in the stock price in the last three years, Trefis believe there is still sizable room for growth and maintains a price estimate of $256 per share for Facebook’s stock. View our interactive dashboard on Facebook’s Valuation to understand what is driving a higher price estimate for the stock.

Additionally, you can also check What Factors Drove The 85% Growth In Alphabet’s Stock In The Last 3 Years?, to understand the drivers behind the stock price movement for peer Google.

 

See all Trefis Price Estimates and Download Trefis Data here

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