Is Facebook overrated or undervalued

Alphabet and Facebook are clearly ... undervalued!

Almost traditionally, the five big tech titles - Alphabet, Facebook, Amazon, Apple and Microsoft - were under special observation in the current reporting season. While the market received the results of Amazon, Apple and Microsoft very positively, many investors sold their Facebook and Alphabet stocks after they released their fourth quarter 2019 figures. But was this justified?

The first look at the numbers of the two tech giants shows that they weren't that bad after all. Both groups continued to show double-digit growth rates and again achieved record profits.

The continuously increasing daily active users (DAUs) on Facebook as well as the dynamically growing YouTube advertising revenues and cloud revenues at Alphabet are also to be rated very positively.

Classic moats

Both tech companies are classic Burggraben stocks - companies with a very dominant market position that is difficult to attack by competitors.

Together with its in-house apps WhatsApp and Instagram, Facebook already has almost three billion users worldwide, around 40 percent of the world's population. With its two FinTech projects (Facebook Pay and Libra), Facebook will be able to further expand its market power and unprecedented profitability.

Alphabet is the undisputed market leader in the area of ​​search engines, owns YouTube by far the largest and most widespread video portal and, alongside Amazon and Microsoft, is one of the three largest cloud providers in the world. Alphabet is also a leader in AI and autonomous driving (Waymo).

THE SHAREHOLDER has already reported several times that the regulatory risks should be less significant than initially assumed by the market.


Historically low rating

Based on four key company figures, it can be seen whether the shares of Facebook and Alphabet are fundamentally worth buying.

With a P / E ratio of 20 of 23 and 21 respectively and a 20 EV / sales ratio of 5 and 6, both Facebook and Alphabet have historically low ratings. At the same time, both tech giants can point to clearly double-digit operating margins (21 and 34 respectively) and a record-breaking low level of debt (8 and 11 percent respectively).

P / E (2020)EV / Sales (2020)EBIT margin in%Leverage in%
alphabet235218
Facebook2163411

Alphabet and Facebook show double-digit growth rates, have a very low level of debt and, due to their excellent market position, form real moats. In addition, the shares of the two companies are also favorably valued. Both values ​​belong in every portfolio of a long-term investor who wants to invest in tech stocks.

If you want to invest a little more in big tech, you can take a look at the GAFAM index. The index published by the SHAREHOLDER includes the five largest US IT companies: Alphabet (Google), Apple, Facebook, Amazon and Microsoft. The shares are weighted equally annually in order to avoid cluster risks. However, dividends are not taken into account when calculating the index. The GAFAM index has increased by almost 130 percent since it was launched.

You can read more about Alphabet and Facebook as well as the other three tech giants (Apple, Amazon and Microsoft) in the current issue (No. 07/2020) of DER AKTIONÄR - which you can download here as a PDF.

The author Emil Jusifov holds direct positions on the following financial instruments addressed in the publication or related derivatives that benefit from the publication of any resulting price development: Alphabet, Facebook.

The chairman of the board and majority owner of the publisher Börsenmedien AG, Mr. Bernd Förtsch, has taken direct and indirect positions on the following financial instruments referred to in the publication or related derivatives that benefit from any price development resulting from the publication: Facebook.

Book tip: The Facebook danger

Facebook has come under fire. Bots, trolls and fake news are synonyms for the group's problems. Since Brexit and Trump at the latest, users have viewed the range and the algorithms with suspicion. One of them: Roger McNamee. Once proud to be one of the first Facebook investors, the financier and tech expert has now become a sharp critic. In his book he settles accounts with Mark Zuckerberg and Sheryl Sandberg. In his opinion, your reaction to the abuse of the social network is completely inadequate and misses the core of the problem: the threat to our basic democratic order. “The Facebook danger” is a wake-up call that cannot be ignored - for Silicon Valley, for politics, for all of us.

Authors: McNamee, Roger
Number of pages: 400
Release date: 21.11.2019
Format: Hardcover
ISBN: 978-3-86470-662-2