Has Facebook Inc Stock Gotten Ahead Of Itself?

By Tim BruggerFool.com

There's no denying Facebook shareholders have enjoyed a great calendar year. Up 34% for the year, Facebook stock is either bumping up against or surpassing its 52-week high seemingly daily. The good news for investors Facebook's strong performance isn't grounded in investor sentiment or momentum.

But let's face it, at 110 times trailing earnings, even Facebook may not warrant that kind of valuation: or does it? For investors that are kicking themselves for having missed the meteoric rise of Facebook's stock price; take heart.

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The mother shipThere's a lot going on at Facebook with its multitude of properties and opportunities, but its primary site is still the revenue driver. And thanks to continually improving the experience, Facebook will keep growing in its own right: just as it did again last quarter, and is expected to when Q3 results are announced Nov. 4.

Facebook's 1.49 billion monthly average users (MAUs) puts it in a league of its own. But the sheer volume of MAUs -- as incredible as it sounds, nearly half the world's online population use Facebook each month -- tells only part of the story.

Not only does Facebook boast an unprecedented number of monthly users, better still just shy of 1 billion access the site daily. Those are engagement levels that Twitter , the little guy on the social media block, can only dream about. Twitter actually has more non-enrolled visitors each month than actual MAUs.

New CEO Jack Dorsey is taking steps to make the enrollment process easier and the site more user friendly to address Twitter's sluggish user growth and engagement levels. Twitter now has 307 million actual MAUs, as of Q3, up just 8% compared to last year. And Twitter's problems are amplified by Facebook's strength in both of these key areas.

With its strong mobile presence of 1.31 billion MAUs, it seems almost laughable to think that just a couple of years ago pundits were bemoaning Facebook's lack of a mobile strategy. Toss in the widespread use of high-priced video ads, on-going MAU growth and maintaining its outstanding engagement levels, and Facebook alone still looks good at today's valuation. And it gets better.

At long lastThough it's not likely to have much of an impact in the recently complete Q3, the possibilities for monetizing Facebook's Instagram property are limitless. This year alone unleashing ads on Instagram is expected to generate $600 million in revenue, and that will almost triple by 2016, and jump to a whopping $2.6 billion the following year. And Instagram itself is still growing by leaps and bounds.

In late Sept. Instagram announced it had breached the 400 million MAU mark; that's a lot of users, to be sure. What makes that MAU figure truly remarkable is that it only took nine months to jump from 300 million users to its current level: no wonder Twitter wanted to acquire Instagram, too. Unfortunately for Twitter, Instagram is another example of falling a bit short when up against Facebook.

The on-going growth of Facebook's own site and the impact of Instagram warrant its lofty valuation in and of themselves. Which is why Facebook's other growth drivers are icing on the cake that long-term growth investors should love.

Much like Instagram before monetization, Facebook's existing 700 million Messenger MAUs and 900 million WhatsApp users are ready, when CEO Mark Zuckerberg is willing, to be monetized and add to both the top and bottom lines. Then there's the soon-to-be-released Oculus Rift virtual reality (VR) headset scheduled for early 2016 that could also add appreciably to Facebook's growth plans. Getting the world connected via Zuckerberg's Internet.org initiative, in addition to being a nice, philanthropic gesture, has the added benefit of bringing more prospective Facebook users onboard.

Yes, Facebook is trading at a high trailing multiple right now, but here's the thing: it's valued at just 38 times future earnings; or about a third of its current multiple. On top of that Facebook itself is growing, Instagram is in play, and a host of other revenue drives are just waiting to be unleashed. $150 a share, anyone?

The article Has Facebook Inc Stock Gotten Ahead Of Itself? originally appeared on Fool.com.

Tim Brugger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Facebook and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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