Bullish on Facebook

It was a good day for Big Tech. Google-parent Alphabet rose 4.2%, Microsoft was up 2.8%, and Facebook was up 3.4%. All three hit all-time highs on the day.

It was part of the broader tech recovery we mentioned above, but there were also company-specific things happening. Over the weekend, Barron's published a bullish cover story on Facebook. We noted that the stock, based on its price-to-earnings multiple is about as cheap as it has ever been. (The stock might be at record highs, but earnings have been growing faster, pushing the ratio of price to earnings lower.)

Facebook isn't exactly loved -- and that's one reason it's the cheapest of the Big Tech names. It's dealing with the most acute regulatory issues. And its advertising business model was more exposed to Covid-19 pain than the cloud-driven Amazon.com or the work-from-home boosted Microsoft. But, as Max Cherney wrote in our cover story, Facebook has something special: Its advertisers and its users "just can't quit the social network." 

Revenue was up 21% in 2020 to $86 billion, despite pandemic-related issues, including a slowdown in travel advertising. Wall Street expects overall revenue to jump 25% this year to $107.8 billion. Earnings growth could slow slightly this year, rising 12%, to $32.6 billion, or $11.31 a share, before returning to 20% growth in the coming years.

And Facebook is now far more than its legacy Facebook business. Instagram is massive, though the company doesn't disclose details. WhatsApp could eventually feature its own ads, generating an entirely new revenue stream for the company. Facebook Shops is a new area of growth, with merchants beginning to use Facebook's massive platform to sell their products. And then there's the biggest wild card of all: virtual reality and augmented reality. The company's latest VR headset, the Oculus Quest 2, has received great reviews and Facebook is calling it the first mainstream VR headset. 

The controversies aren't going away -- Facebook suffered its latest privacy issue over the weekend -- but earnings are growing, and the stock is cheap. That may be all investors need. 

You can read Max's cover story here.