Despite Facebook’s (FB, Financial) massive $360 billion-plus market cap, the company has been growing its revenue at a strong pace. The revenue growth has reflected in the stock price as Facebook has been moving higher for the past two years. In the past nine out of 10 quarters, Facebook managed to surpass earnings as well as revenue estimates by a great margin. In the second quarter of fiscal 2016, the company reported earnings per share of 97 cents, 15 cents better than the estimates, whereas its revenue came in at $6.44 billion, $420 million greater than the estimates.
Facebook’s strong quarterly results clearly suggest that it has a robust business model. Currently, the company is putting in a lot of effort to improve its artificial intelligence segment. This segment builds tools for image recognition, natural language processing, speech recognition and real-time transition, as well as other AI-based jobs.
In 2015, the company assimilated integrated chatbots directly into its individual messenger app, as these bots permitted customers to have automated conversations. However, the company has now strategized to prolong this technology into smart homes with Jarvis, which is an in-home artificial intelligence assistant that could be compared to Amazon’s (AMZN, Financial) Echo.
To compete efficiently against its competitors, the company is basically enhancing the tools for mining the data of its approximately 1.7 billion monthly active users. The company is moving on the right track because as soon as these tools are improved, the more appropriate its ads will become when equated to Google’s ads.
On the down side, it is well-known that Samsung (XKRX:005930, Financial) discontinued the manufacturing of its Note 7. It is true that the circumstances surrounding this event damages the brand image of Samsung, but it could adversely impact Facebook’s Oculus VR. Like Samsung’s Galaxy S7 models, the Note 7 was designed to work with the Gear VR headset.
As a matter of fact, Gear VR was co-developed with Oculus and tied to Oculus Home ecosystem. Keeping in mind the termination of Note 7, the company recently disabled the Gear VR application on those headsets.
Facebook is heavily dependent on Samsung’s devices, as the $99 Gear VR is the only cheap option compared to high-end VR headsets. According to SuperData estimates, approximately 2.3 million headsets will be sold by the end of 2016.
Conclusion
Facebook’s strong growth will likely continue as the growing presence of its strong digital advertising presence will continue driving its profits and revenue higher. Facebook can easily move higher from the current levels and I think the stock is a good buy despite its massive size.
Disclosure: I don't hold a position in the stocks mentioned in the article.
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