Why Facebook Inc (FB) Actually Looks Cheap Heading Into 2018

Facebook Inc (NASDAQ:FB) has repeatedly wed about peak ad load on its namesake platform, but ad revenues still haven’t come close to plateauing.

That has some analysts wondering if the slowdown will ever actually happen at all. Michael A. Ball over at Seeking Alpha explains his bullish thesis as follows:

I have yet to see someone — on my Facebook feed — complain about ads. In fact, they compliment the user experience. Until this changes, Facebook’s current business model is highly sustainable. Revenue growth of up to 50% proves the model works impeccably well, not to mention $20bln in EBITDA, and 55% EBITDA margin. Huge margins for such a large company are rare.

Indeed, FB’s margins are impressive. Even without the ability to pump more ads into the News Feed, Facebook can still monetize other products and raise prices as well. WhatsApp, for example, is used by over a billion people worldwide, and still has basically no revenue model.

Instagram’s meteoric growth is another factor, as is Facebook Watch, the company’s fledgling streaming video offering. Then there’s Oculus, the leading virtual reality (VR) unit that could bring a standalone headset to market in 2018.

Any way you look at it, Facebook appears relatively cheap heading into next year. With massive top-line growth essentially a given, it would be very surprising if the stock didn’t provide market-beating returns once again.

Facebook Inc shares fell $0.02 (-0.01%) in premarket trading Friday. Year-to-date, FB has gained 54.65%, versus a 22.17% rise in the benchmark S&P 500 index during the same period.

FB currently has a StockNews.com POWR Rating of A (Strong Buy), and is ranked #4 of 50 stocks in the Internet category.