Facebook (FB) Stock Price

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BUY - rate is expected to increase, i.e. the first currency gains value against the second currency.
SELL - rate is expected to go down, i.e. the first currency is expected to lose value against the second currency.

The most successful social media company of all time, Facebook is one of the top revenue-earners of the tech scene. Alongside Amazon, Apple, Netflix and Google (Alphabet), it is part of the FAANG group of tech stocks.

The company and the Facebook brand may have had their ups and downs over the years, but since the IPO, Facebook share value has been climbing quite steadily.

As far as revenues are concerned, Alphabet (GOOG) is Facebook’s top competitor.

How does Facebook make its money?  

Company revenue is the motor behind share prices. It therefore makes perfect sense to assess this metric before all others, when determining the potential profitability of an investment.

Much like Google’s parent company, Alphabet, Facebook generates most of its revenues from targeted advertising. Unlike Google, Facebook does not really share any of these revenues directly with the users of its network. In addition to ads, Facebook has been known to make money off its users’ personal data too.

Is that not illegal? Whether it is or not, it certainly does not bode well for users, who provide this data to Facebook for free. How exactly did Facebook monetize this dubious avenue though?

According to a New York Times article, the social network giant granted various multinational companies access to the private data of its users. Some of these companies were Netflix, Microsoft, Amazon, Spotify and Altaba (Yahoo). The “data abuse” took different forms and degrees.

Netflix and Spotify for instance, were given access to user’s personal messages. Bing (Microsoft) on the other hand could browse all the names on users’ friend lists.

As far as ads go, Facebook has covered all the bases. How can it serve up custom ads without compromising user privacy? The company claims that it keeps its user data anonymous and serves up ad deals in custom demographic packages. Advertisers can further dissect these packages, and thus target users based on their geographic location, sexual orientation, political affiliation etc.

Facebook Video and messenger service

Always looking to expand its revenue streams, Facebook has recently been considering the monetization of its video platform as well as its messenger service.

Ads will obviously be used on both platforms as the drivers of growth. The messenger service has already been displaying ads for a while.

With its existing markets saturated and rocked by more than one scandal over the years, Facebook has been able to sustain its growth through new markets in Africa and Asia.

Let us not forget that Facebook also owns WhatsApp and Instagram – services which have been generating revenue of their own for some time.

Facebook investment risks

The mentioned dependence on ad revenue is obviously a major Achilles’ heel of the Facebook investment setup. Market saturation is yet another potential hurdle to growth.

The problem of ad revenue reliance is exacerbated by massive discrepancies seen in results across advertisers. While revenues rose, the number of actual advertisers has dropped. All this is the opposite of diversification.

Competition, regulatory- and market risks cannot be left out of the picture either.

BUY - rate is expected to increase, i.e. the first currency gains value against the second currency.
SELL - rate is expected to go down, i.e. the first currency is expected to lose value against the second currency.

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