Facebook Inc (FB): Is It Right Time To Short The Stock?

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Facebook Inc (NASDAQ:FB) stock has skyrocketed 35% year-to-date, thanks to strong revenues and user growth. The stock hit an all-time high of $109 on November 11. At the end of third-quarter, the social networking giant had 1.55 billion monthly active users. Its sky-high valuations have prompted bears to short the stock. Is it the right time to short the stock? Probably not, says Jack Foley of AmigoBulls.

Facebook Inc (FB): Is It Right Time To Short The Stock?

FB yet to monetize its videos

Facebook Inc (NASDAQ:FB) stock is currently trading at 106 times its earnings. If you look at the company’s price to sales ratio, it stands at 19 compared to the S&P 500 average of 1.8. These metrics indicate that the stock is enjoying a lofty valuation. But you have to take into account the Menlo Park-based company’s growth potential to get the real picture. The world’s largest social networking company has several growth avenues that it is expected to tap in the near term.

Even if user growth rate for the core Facebook platform slows down, there is immense monetization potential. Currently, there are more than 40 million businesses on the platform, but only 2.5 million of them are using its ad service. Most of them are in the same industry, competing with each other. More competition may lead to a rise in ad pricing.

Facebook Inc (NASDAQ:FB)’s video service is now only behind YouTube. But the company hasn’t even started monetizing its videos. Since videos increase user engagement, video ads are likely to be more remunerative, said Foley. And then Facebook has two other giant properties: WhatsApp with 900 million active users and Instagram with 400 million users. Both these platforms are much bigger than Twitter.

WhatsApp, Instagram virtually untapped

The social networking giant started monetizing Instagram only recently by placing ads in users’ feeds. Foley expects Instagram revenues to rise sharply in the coming quarters. WhatsApp may not have the same revenue per user as Instagram, but it still has a strong monetization potential. Local businesses are already interacting with customers on WhatsApp. Prospective customers are always going to use the quickest way to get their queries answered before making a purchase decision.

Overall, Facebook Inc (NASDAQ:FB)’s lofty valuation shouldn’t deter investors because the company still has many untapped growth avenues.


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