Is Facebook a Buy?

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Facebook (NASDAQ: FB) is one of two dominant forces in digital advertising. And with the shift of ad budgets toward digital, Facebook shareholders have been some of the biggest beneficiaries.

The company consistently beats expectations for earnings and revenue growth even as it faces challenges both internally -- like ad-load saturation -- and externally -- like competition from Snap (NYSE: SNAP) and Twitter (NYSE: TWTR).

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Investors interested in benefiting from the trend toward digital advertising must consider Facebook for their portfolios. And after the recent market pullback, the stock is trading at a very reasonable price considering its potential earnings growth.

Join the duopoly

Facebook and Google, the Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) subsidiary, account for around 73% of all digital ad spending in the United States, according to Pivotal Research. What's more, their share of the market is actually getting bigger, as they account for nearly all of the growth in digital ad spending. The story internationally is similar.

Facebook has managed to keep growing ad revenue despite its massive size. Active user growth in the mid-teen percentages doesn't seem to be slowing down, but the vast majority of new users are coming from emerging markets. That means Facebook's newer users are less valuable to advertisers, but present an opportunity for long-term growth as ad prices in emerging markets keep growing.

Speaking of ad prices, Facebook is showing strong pricing power for its ads. CFO Dave Wehner warned about ad-load saturation hitting revenue growth in the second half of 2017. While impression growth fell below active user growth in the fourth quarter, ad prices increased 43%. Advertisers are showing stronger demand for Facebook's products than for Twitter's and Snap's.

Despite increased competition from Snapchat, Twitter, YouTube, and dozens of other social apps, time spent across Facebook's family of apps remains strong. More time spent means more opportunities for Facebook to show ads.

Recent changes to the news feed have negatively impacted engagement on Facebook, according to CEO Mark Zuckerberg. But they shouldn't have a big impact on ad impressions and could be a positive for ad prices.

With a steadily growing user base spending more time across the Facebook family of apps and a huge number of advertisers willing to spend more to reach them, Facebook is poised to keep growing quickly.

The rest of the family

Don't forget that Facebook owns more than one app. Instagram is its second-most important app right now, and it's turned into a revenue machine.

The photo-sharing app generated about $4.1 billion last year, according to estimates from eMarketer. That number could climb to over $10 billion by next year. Instagram already has over 2 million active advertisers, and that number is growing quickly. Monthly active users reached 800 million in September and should surpass 1 billion this year, making Instagram Facebook's fourth billion-user app.

There's also Messenger and WhatsApp, which are in the early stages of monetization. Facebook is in the midst of creating tools for businesses to connect with users on those platforms, recently releasing WhatsApp Business -- an app designed for businesses to provide customer service via WhatsApp chat. As Facebook attracts more businesses to these platforms, further monetization opportunities are sure to surface.

Facebook is also working on several features within its flagship app such as Marketplace and Watch, which have the potential to become stand-alone products in their own right. Watch is still finding its footing, but Marketplace has become a popular alternative to Craigslist for consumer-to-consumer commerce with 700 million people buying and selling goods on Facebook every month.

Is Facebook a buy?

For those who want to jump on board the megatrend of growing digital ad sales, there's no better option than Facebook. (Alphabet is tied with the social network, in my opinion.)

Facebook hasn't been immune to the recent market pullback. But that may present one of the best opportunities investors will ever have again with Facebook stock. With several growth opportunities still ahead of it, and the shift to digital ad sales propelling it, Facebook is a buy right now.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Adam Levy has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Facebook, and Twitter. The Motley Fool has a disclosure policy.