FACEBOOK:FUNDAMENTAL ANALYSIS+PRICE ACTION|NEXT TARGET|LONG🔔🔔

The majority of people have heard of the social network Facebook; with 1.9 billion daily active users, nearly one in four people in the world uses Facebook daily.

The company's stock has risen sharply this year, surging 33 percent over the year. This far surpasses the S&P 500's 19 percent rise over the same period.

There is, of course, a good reason for investors' growing interest in the stock. The social media company's advertising business is showing incredible momentum, and Facebook's quarterly top and bottom-line results are easily ahead of analysts' estimates.

But for investors, the company's novel goes far behind a Web site where people post pictures of their favorite kitties; and today we give a few reasons why Facebook is an attractive investment opportunity.

- Dynamic business model

FB began as a simple social network in the early 2000s, but founder and CEO Mark Zuckerberg actively positioned the company for later success. Zuckerberg predicted the importance of images to social media when he bought Instagram for $1 billion nine years ago, usually seen as one of the "steals" in the company's history, now that Instagram boasts more than 1 billion users.

Next, Facebook obtained WhatsApp in two years, a deal worth $16 billion in cash and stock; the WhatsApp platform now has more than 2 billion users and is the most popular mobile messenger in the world. Zuckerberg has also developed a passion for augmented reality (AR) and virtual reality (VR), buying VR hardware company Oculus for $2 billion in 2014 and recently announcing a new team to promote Facebook's "Metaverse" business.

- "Cash cow" with room to grow

Those decisive steps have generated value for Facebook over time, both through user growth and monetization. Facebook gets most of its revenue from advertising, so by improving the number of users and getting more and more revenue from them, it's a two-way way to grow revenue.

Over the past two years, the total number of daily Facebook users has grown by 20% to 1.9 billion. At the same time, Facebook is improving its average revenue per user (ARPU), which reached $10.12 per user in the Q2 of 2021, up 43% from last year.

As more users bring in more revenue, Facebook's overall revenue growth is impressive. In the second quarter of 2021, Facebook's revenue was $29 billion, up 56% from 2020.

- Aggressive stock buyback

The business is highly successful and brings a lot of cash as revenues grow. In the second quarter, Facebook converted $8.5 billion, or 29% of revenue, into free cash flow (FCF); FCF is the cash left over after the company spent whatever it needed on the business.

Instead of paying dividends to investors, Facebook repurchases its own stock. When the company repurchases its stock, it increases the value of the remaining shares as its profits are distributed among fewer shares. The result is an increase in earnings per share (EPS), which generally leads to a higher share price over time.

Facebook bought back $7.1 billion of its stock in Q2 2021, and the total number of shares outstanding dropped to 2.877 billion from 2.921 billion at the end of 2018. The company has $64 billion in cash and securities on its balance sheet, so investors should expect the stock buybacks to continue.

- Stocks that are selling off in a selloff

Facebook is a huge company, with a market value of $1.05 trillion. The company is expected to earn $14.08 per share for all of 2021, giving it a price-to-earnings ratio of 26.

Exceeding projections means a 40% gain in earnings per share over 2020, which is an exciting surge for a business of this size. Experts additionally anticipate a double-digit increase next year, so the current estimation seems very fair.

One aspect of Facebook that is difficult to factor into the valuation is the company's versatility. With all that cash on its balance sheet and a forward-thinking management team, it's hard to calculate the potential value that Mark Zuckerberg could create in the future, which is not obvious today. We can only look at what Facebook is currently. Still, the company's ability to create new business segments through acquisitions or innovation is something investors should keep in mind, especially given Zuckerberg's enthusiasm for the Metaverse.

Big tech companies rule the world, and Facebook is one of the select few in the club of trillion-dollar market capitalization companies. But don't be fooled: the company continues to grow, makes lots of money, and returns value to shareholders through stock buybacks and strategic moves that create long-term value for the company. There's a lot to like about Facebook that makes it an attractive investment idea today.