Facebook (NASDAQ: FB) shares have fallen out of favour with the market recently. The stock is off around 14% from its 52-week high of $382 printed at the beginning of September. Over the past 12 months as a whole, shares in the social media group have added 19%.
Investors appear to have been selling the stock following the leak of the so-called Facebook papers.
Frances Haugen, a whistleblower and former employee, has released a stack of documents, which show, among other things, that the number of teenage users of the Facebook app in the US has declined by 13% since 2019. The number of teenage users is expected to drop a further 45% over the next two years.
The documents also appear to show that the number of users between the ages of 20 and 30 is expected to decline by 4% over the next two years.
Earnings growth
While these numbers might be concerning, Facebook’s earnings show a different picture. According to its third-quarter figures, group revenue totalled $29bn in the period. The number of daily active users is 1.93bn. Quarterly revenues jumped 56% year-on-year, and net income rose 100%.
Overall, the number of users across its family of apps, including Instagram and WhatsApp, totalled 3.58bn in the third quarter, up from 3.51bn in the second quarter.
The group also rewarded investors with a $50bn share repurchase authorisation. Based on the current market capitalisation of around $930bn, this implies the business will repurchase more than 5% of its outstanding shares.
I do not think these figures show a company in decline. If anything, it looks as if the enterprise is gearing up for its next stage of growth.
The outlook for Facebook shares
The organisation announced its plan to break out Facebook Reality Labs into its own reporting segment starting in the fourth quarter. This division focuses on hardware, augmented reality and virtual reality products. These are all part of the company’s expansion into the so-called metaverse.
The metaverse is a digital world in which multiple people can interact within a 3D environment. This is Facebook’s next big growth market. The enterprise is spending $10bn this year to invest in the technology, although it is still a fledgling division.
Despite these growth initiatives, the company’s hefty cash returns to investors, and earnings expansion, the stock is trading at a forward price-to-earnings (P/E) multiple of just 24. I think this undervalues the enterprise, and as such, I would buy Facebook shares for my portfolio today.
Still, I am aware that some investors may be uncomfortable investing in the social network. It has attracted so much criticism over the past few years.
There is a chance these criticisms could translate into additional regulations and legislation, impacting group profitability and growth. This is probably the most considerable risk and challenge the company faces today, and it is something I will be keeping an eye on going forward.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Facebook. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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