Facebook (FB) is the well-known online media giant; the stock — our Top Pick for 2021 — has risen 23% so far this year, notes Doug Gerlach, editor of Investor Advisory Service.
Our assessment of the company’s prospects as 2021 began were based on an understanding that the COVID-19 pandemic accelerated trends that were already in place and driving Facebook’s business.
As 2020 ended, it was clear that Facebook would continue to benefit from shifts in consumer and business behavior that the year delivered. Indeed, the stock has risen 24% since the start of the year.
After suffering a slowdown mid-2020, Facebook accelerated growth by utilizing its substantial reach to help small businesses pivot to eCommerce.
Sales for Q4 2020 grew 33% as the company benefited from the demand for small businesses to reach online customers, despite some slowdown in Daily Active Users (DAUs) for Facebook and its “Family” of applications (Facebook, Instagram, and WhatsApp) in the U.S. and Canada as restrictions began to be lifted. Still, expense leverage and a lower tax rate help push EPS up 52%.
Heading into 2021, analysts’ expectations for Facebook were relatively modest, given concerns about privacy issues due to newest operating system release from Apple (AAPL), the path of economic activity due to COVID-19 and government actions related to through anti-trust lawsuits or regulation.
Still, this set up a real possibility that the company could easily beat the consensus estimates based on 2020’s tailwinds.
In Q1 2021, Facebook’s sales grew 48% on the back of a 30% increase in the price per ad. Users continue to join Facebook’s various platforms, and eCommerce gainesd traction from small and medium businesses that found themselves needing a way to reach and sell to customers without a physical presence.
The company restrained its SG&A expenses in the quarter, supporting EPS growth of 93% year-over-year (partly due to an easy comparison to a weaker Q1 2020).
The growth story isn’t over. In its Q1 release, management said that it expects moderate to flat sales growth in Q2 compared to the first quarter, implying a year-over-year increase of at least 40%. Meanwhile, analysts are projecting roughly $13.00 of EPS for full year 2021, a mid-20’s P/E ratio.
We maintain our projection that Facebook will see EPS growth of 17% a year on average over the next five years, and currently consider Facebook a buy up to $349.
