Despite its controversy, Facebook (NASDAQ: FB) makes incredible amounts of money.
For example, Facebook had $54.855 billion in cash and short-term investments on 31 December 2019. Therefore, Facebook has more cash than Amazon (NASDAQ: AMZN). Amazon had $43.401 billion in cash and short-term investments on New Year’s Eve 2019.
Additionally, Facebook is one of the most profitable companies around. Facebook reported a quarterly gross profit of $17.590 billion on 31 December 2019. In comparison, Amazon reported a quarterly gross profit of $28.679 billion on the same day.
Facebook Is Incredibly Profitable
Interestingly, Facebook reported a $17.590 billion quarterly gross profit on quarterly revenues of $21.082 billion on 31 December 2019. In comparison, Amazon reported a $33.46 billion quarterly gross profit on quarterly revenues of $87.437 billion on the same day.
Thus, most of Facebook’s revenues are gross profit. Meanwhile, expenses absorb most of Amazon’s revenues. For instance, Amazon reported a $53.977 billion cost of revenue on 31 December 2019. Facebook reported a $3.492 billion cost of revenue on 31 December 2019.
Interestingly, Facebook reported a quarterly operating income of $8.858 billion and a common net income of $7.349 billion on New Year’s Eve 2019. Yet Amazon reported an operating income of $3.879 billion and a $3.267 billion income after tax on the same day.
Facebook Makes More Money than Amazon
Therefore, Mark Zuckerberg’s social media empire makes more money than Amazon.
However, Amazon generates more cash than Facebook. Facebook reported an ending cash flow of $3.199 billion and an operating cash flow of $9.083 billion for the quarter ending on 31 December 2019.
Amazon reported an ending cash flow of $12.856 billion for the quarter ending on 31 December 2019. Plus, Amazon reported an operating cash flow of $19.659 billion for the same period.
Under those circumstances, I considered Facebook a value investment at the $209.77 stock price from 4 February 2020. I call Facebook is a value investment because of its capacity to generate vast amounts of cash.
How Far can Facebook grow?
Facebook (NASDAQ: FB) is a growth stock. Stockrow estimates Facebook’s revenue grew at a range of 24.64% during the last quarter of 2019. Conversely, Amazon’s revenues grew at a rate of 23.69% in the quarter ending on 30 September 2019.
However, Facebook’s revenue growth is slowing. For instance, Facebook’s revenue growth rate fell from 30.39% in the last quarter of 2018 to 24.64% in the quarter of 2019.
Thus, Facebook’s revenue growth could end at some point. On the other hand, I think Facebook will have several years of has many years of revenue growth in front of it.
Is Facebook a Value Investment?
If you are seeking an undervalued growth stock with a bright future, Facebook is a good choice.
Beyond growth and cash I think Facebook is safe because of the sheer size of its social media networks. Statista estimates Facebook’s flagship app had 2.498 billion active users in 4th Quarter 2019.
Additionally, Facebook owns four social networks with over one billion users. In detail, Statista estimates Instagram had one billion users, Facebook Messenger had 1.3 billion users, WhatsApp had 1.6 billion users, and Facebook had 2.14 billion users in October 2019.
Consequently, Facebook’s social media properties had 6.04 billion users in October 2019. Thus, Facebook is the greatest media empire in history. Zuckerberg is more influential than of any history’s great media barons.
Mark Zuckerberg is History’s greatest Media Baron
Facebook (NASDAQ: FB) is the most influential media in America and Mark Zuckerberg is America’s most influential man.
For instance, the Pew Research Center estimated 69% of American adults used Facebook in May 2019. Additionally, Pew estimates 74% of Facebook users visited Facebook once a day in May 2019.
Plus, 79% of Americans aged 18 to 29 use Facebook and 46% of Americans over 65 said they use Facebook in May 2019, Pew estimates. However, only 51% of Americans 13 to 17 said they used Facebook in the same period. That number was down from 71% in 2014 to 2015.
Interestingly, few Facebook users understand the platform. For example, Pew estimates 74% of U.S. Facebook users did not know Facebook maintains lists of their interests and traits.
Warren Buffett cannot compete with Facebook
Importantly, 43% of U.S. adults admitted they get news from Facebook in May 2019, Pew reports.
Tellingly, Warren Buffett announced he was leaving the newspaper business on 29 January 2020, The Washington Post reports. To explain, Berkshire Hathaway (NYSE: BRK.B) sold all of its newspapers to Lee Enterprises (NYSE: LEE) for $140 million. Notably, Mr. Market was paying $2.11 for Lee’s stock on 31 January 2020.
Thus, Buffett believes that newspapers can no longer make money and you cannot compete with Facebook in the news business. Plus, Buffett admits you cannot make money in news outside social media.
Can Facebook Survive?
Facebook now has a vast amount of power because of its influence, platform, and all the cash it generates.
Facebook; for instance, could buy ViacomCBS Inc. (NASDAQ: VIAC) for cash, and have $34.127 billion left. To explain, Mr. Market gave ViacomCBS a $20.718 billion Market Capitalization on 4 February. Meanwhile, Facebook had $54.88 billion in cash and short-term investments on 31 December 2019.
Viacom owns America’s most popular broadcast television network: CBS, a major publisher Simon & Schuster, a big streaming service CBS All Access, a historic Hollywood movie studio; Paramount Pictures, and several cable networks. Therefore, Mark Zuckerberg is the emperor of all media, sorry Howard Stern.
Will we break Facebook up?
Given Facebook’s size, money, and influence I expect there will be political pressure to break Facebook up.
I do not how successful that pressure will be because of Facebook’s utility to politicians. To explain, influential politicians such as President Donald J. Trump (R-Florida) and U.S. Senator Bernie Sanders (I-Vermont) use Facebook to attract votes.
Both Trump and Sanders use social media to reach voters. For example, U.S. Presidential candidates spent over $67 million Facebook ads in 2019, Open Secrets estimates.
Plus, Facebook’s revenues and profits give politicians a strong incentive to preserve it. To explain, politicians will want to get their hands on Facebook’s money through taxation. Thus, I think America will have a corporate revenue tax or a digital advertising tax soon.
Given the realities, I think Facebook will be with us for many years to come. Hence, all investors need to research Facebook and consider buying its stock.