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18/10/2021

Investing in Facebook stock

As the world's leading social network, Facebook currently has nearly 3 billion users. Facebook stock made a difficult debut on the NASDAQ US stock exchange on May 18, 2012, under the ISIN code US30303M1027. However, reassuring profits and turnover figures over the past few years have proved attractive to investors. As a result, share value rose from $38 at the time of its IPO to $230.71 in July 2020. 

History

Founded in 2004 by Mark Zuckerberg, who was only 20 years old at the time, Facebook is one of the “Big Five” tech giants alongside Google, Apple, Amazon and Microsoft. The social network was launched at Harvard University. Initially known as thefacebook, it was only used by Harvard students at the time. 

In 2005, the platform became known as Facebook with the purchase of its current domain name, Facebook.com, for $200,000. Facebook was made available to a few other American and Canadian universities before being opened to all in 2006. 

In 2007, Yahoo offered to buy Facebook for $1 billion, an offer Mark Zuckerberg declined. He turned down other interesting offers, including a $15 bid from Microsoft.

The social network’s activities have continued to expand. In 2008, Facebook’s international HQ was moved to Dublin, Ireland. It also opened an office in Paris. Over the following years, Facebook continued to develop by purchasing companies such as Instagram in 2012 for $1 billion, WhatsApp in 2014 for $22 billion, Oculus in 2014 for $3 billion and Giphy in 2020 for $400 million.

The Facebook business model

Facebook has offices in 70 cities across Europe, North America, Latin America, the Middle East, Africa and Asia. In 2020, it had more than 50,000 full-time employees and nearly 3 billion monthly active users, 410 million of whom are located in Europe. 

From 2015 to 2018, the company’s revenue gradually increased from $17.93 billion to $55.84 billion. This figure increased dramatically in 2019, with a 26% increase compared to 2018, enabling it to reach $70.697 billion. Around 50% of Facebook’s revenue is generated in the United States and 50% in the rest of the world. In the same year, it made $18.485 billion in annual profit.

The 2020 health crisis saw the group's sales reach 18.687 billion in the second quarter, an increase of 98% compared to the second quarter of 2019. 

IPO and stock quote

Valued at 104 billion, Facebook went public with a stock price of $38 per share on May 17, 2012. With a revenue of $5 billion that year, it put 421 million shares on the market.

The share price, however, fell in its first few days of trading. The company capitalized $90 billion at the time of its IPO, but was at $69 billion 6 days later. In the same month, the stock saw a 22.3% drop from $38 to $29.52. The stock continued to lose value, reaching $19 three months after the IPO. Controversies arose: early investors questioned the company's transparency and sued the issuing banks. The opening price of $38 was not reached until July 2013, 14 months after the IPO.

After this rocky start, the share price climbed to over $50 in 2013. This price was more or less maintained until 2014. In 2015, Facebook's share value exceeded $100 and reached $150 in 2017. The following year marked a turning point for the group, with stock reaching $200 in July, only to drop to $130 in December.

With the health crisis in early 2020, the impacts were felt on Facebook's share price. Between the end of February and the end of March, the share price dropped from 218 dollars to 149 dollars

Factors influencing Facebook's share price

Facebook is investing heavily in R&D and more specifically artificial intelligence. The group’s business development possibilities over the coming years include face recognition, deep learning, machine learning, autonomous vehicles and instant voice translation. Hosted games, technical development and technological advancement can play in favor of stock price.Following controversy related to personal data use, Facebook has implemented solutions to protect its users, which could impact share price.

The group's revenue is mainly dependent on advertising. The coronavirus crisis of 2020 obliged many clients to reduce advertising budgets, with a tangible impact on the web giant’s revenue. Although this may negatively influence the share price, advertising space is experiencing high demand due to the effectiveness of Facebook ads.

Advantages and disadvantages of the stock

Facebook’s results are improving year after year. A diversified activity portfolio and expansive network (more than 66% of Internet users in the United States) guarantee its place as market leader. Its rising cash flow is also reassuring to current investors and attractive to new ones. 

Before investing in Facebook, it is essential to know that its shares do not entitle you to dividend payments. For stock market purchases to generate capital gains, investors rely solely on the increase in the share price. 

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