Everyone uses or at least heard of Facebook or one of it's subsidiary's, but very few people realize how important it has become in our everyday lives. With four of the top five most downloaded apps of all time it's no surprise they were able to amass a two billion member mark. But how does a social media platform that is free to it's members make money? That brings me to point number one.

1. Advertisement Revenue

         As smart phones become more and more relevant in our every day lives, so do digital ads. Almost every application you download on your phone is either a paid subscription or has advertisements. Facebook is no different. With all their successful platforms it's no secret why they have been able to become a cash cow.

      In fact, in 2016 for the first time ever, Digital Advertisement revenue has surpassed TV ads in the United States, and it wasn't a fluke. It has been getting closer and closer each year before finally passing it.. And they are looking to expand the gap. It is expected by 2020 that over 113 billion dollars will be spent on digital ads in the U.S alone and over 347 billion globally, the 347 billion represents 84% more then what is expected for TV ads; 183 billion.  

2. The more effective ads

      Facebook ads are simply more effective then TV ads. Audience targeting with television ads is impossible- although you can choose where and when you want the commercial to play, there is no guarantee that a person will be sitting in front of the TV when it plays. TV viewership is down across the board and social media usage time has continued to rise, the average person spends 35 minutes a day on Facebook or a Facebook application which breaks down to over 60 more hours a year then people watching television. These ads aren't just random either.. When running an ad on Facebook you choose a specific age, gender and location to target, but it goes even further than that- you can target people based on recent life events such as a new job, new marital status and even recent purchases.

      For example, say you purchase a camera- and all of a sudden, you see advertisements for accessories on that camera. You start seeing tri-pods, cases, lenses etc. you are being targeted by those advertisers based on your recent purchase; You and anyone else that falls under that criteria.Aside from being able to reach a better targeted audience, it's also a lot cheaper.. It takes just a quarter to reach 1000 optimized customers.. It takes TV ads $7 to reach the same audience.

3. They have members.. billions of members

Facebook- 2.2 billion users.
Instagram- 1 billion users.
Whatsapp- 1.5 billion users.
Facebook Messenger- 1.3 billion users.

4. The actual results

The results of being one of the most popular websites in the world and the most downloaded application ever has resulted in some great numbers. Since 2014 assets are up over 260%, net income is up over 440%, total revenue is up over 226% and gross profits are up over 240%.

5. Lack of competition

      Although Google received the bigger portion of digital ad revenue- they aren't really in the market of social media. Their biggest platforms are Gmail, YouTube, Google search engine and Google maps.Twitter is the next biggest social media platform in the United States-and they have 20% of the amount of users Facebook does. The difference is that Facebook knows how to capitalizes on those massive numbers.. their revenue in quarter 2 of 2018 beat out twitters 2017 entire revenue by over 400%.Even if Twitter does become more popular, there is plenty of ad revenue to go around.

6. Massive amount of money in the bank

      With over 8 billion in cash and cash equivalents and no long term debt- they are in a position to have massive investments and new projects without having to take out any debt. They may even start buying back shares or paying a dividend.

7. Buy at a discount

      Currently trading under $160, this was a $220 per share company less the 3 months ago- so what went wrong? It seemed like nothing but an over reaction. Facebook has been a growth monster for the last few years. During the 2018 quarter two earnings they posted a 12% daily active users increase (DAU)- which fell short of the wall street expectations, causing the shares to drop 20%. But should an 11% increase in users cause a share price to be cut down by a fifth of it's value? No, but I'll take the discount. Especially when the rest of the numbers looked decent, they beat EPS by $0.02 and ARPU (Average price per user) beat expectations as well. Maybe they won't be able to grow members at a 20% rate ever quarter like they used to be able too, because there's only so many people in the world. Over 25% of the world already uses a Facebook Application. Over 60% of the world still does not have regular access to the internet..

That means, of the 40% that DO have regular access, 25% of them are using a Facebook application. As internet continues to become available to other parts of the world so will Facebook. Mark Zuckerberg is even trying to help developing nations gain regular access to the internet. Something that could change the world and the company forever.

At this price point it seems like a no brainer- in my personal opinion Facebook is the easiest money on the market, it's not a matter of IF it will bounce back but simply a matter of when




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