Facebook rises 385% since its IPO: why?

Facebook is a company that perfectly shows how the world has evolved in recent years. An unstoppable trend that has also moved to the markets, since its shares have skyrocketed more than 385% since it began its journey on the stock market.

The Facebook business model has been tremendously successful. So much so that its upward trend has been maintained despite the bumps it has been finding along the way. But ... What can it hold for the future? Much influences its strategy as a business and the internal development that the company is doing.

As a context, the social network presented a 14% higher profit than the one registered during the same previous period up to $ 1.99 per share. The market consensus estimated earnings per share of $ 1.88, which marks the path that the company led by Mark Zuckerberg is tracing.

And it is that the increase in income to 16,890 million dollars from 13,230 million dollars in the same quarter in the previous year provide a solid basis for maintaining attractive growth for investors, as they consider analytical houses such as RBC or jefferies.

To determine if the actions are attractive in the long term, a series of variables must be observed. One of them is that it should be taken into account that right now it quotes at 31.45 times its benefits. This represents an upward trend compared to industry readings, which is 15.87 times, while the industry average is 40.18 times.

The most popular way to value an action is to look at its historical price / benefit ratio (PER) with the help of its results report in the last 12 months.

However, it is equally important to observe daily volatility. In this sense, in recent months it has been at 1.94% in the company's shares, which is quite low compared to the average of the technological actions.

Thus, an action with low volatility is usually good, since it means that investors have a lot of confidence in it. The volume of Facebook operations has recently moved to 9.92 million, which is compared to the average daily volume of 16.74 million shares.

Against this backdrop, the market consensus forecasts a target price for its shares of $ 232 compared to the $ 185 at which it currently moves.

Reasons why Facebook can continue to go public

Many technology companies collapsed badly when Washington and Beijing intensified their trade dispute. In addition, global markets are very nervous because two countries represent the two largest economies in the world. A factor that, although not directly influencing the social network, caused its correction in the markets.

However, once the market stabilizes and tells the news, investors could recognize the obvious, according to analytics houses such as RBC and Jefferies: Facebook shares have virtually no exposure to China. As a communist government, the Asian giant has multiple censorship protocols on hand. And so far, Facebook has not penetrated this market. At least not at the official level.

That makes the user base and the company's growth even more impressive. During the second quarter of 2019, Facebook introduced more than 2.4 billion monthly active users (MAU). To put this in perspective, 31% of the world logs into your website or application.

While Google’s search engine ranks first in the world, the social media company covers the activities that users of the Mountain View-based company look for.

For example, this social network of more than 2 billion is much more optimal if you want to find someone. In addition, if you wish to hold an event, or a campaign, or promote your business, your platform lends itself to participation, mass advertising and scalability.

In addition, with the acquisition of Instagram, Facebook offers comprehensive demographic coverage. With this integration Facebook has made significant progress with young people against rival Snapchat. Therefore, in the long term, "you will be much safer with Facebook's actions compared to other social networks," they say from RBC.

While many institutions are panicking over the commercial war crisis, this issue has provided an important lesson from the investor's point of view. Globalization has its benefits, such as the improvement of individual opportunities. But it also has its disadvantages.

One of the most important is that we cannot always rely on the intentions of international partners. That is really the case with China. Although the Trump administration handled this issue indecisively, it certainly had the moral advantage.

In addition, China has had no qualms about rivaling US dominance in the technology sector. Therefore, we come to an awkward outcome. In this way, Facebook has made mistakes. If the geopolitical environment were different, perhaps "we should consider dividing Facebook actions," they say from Jefferies.

But we are not in "that utopia," he adds. Instead, we are right in the middle of a technological cold war. And so, we must learn to deal with "the unfair share price of the company."