Is Facebook a Hot Stock?

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With shares of Facebook (NASDAQ:FB) trading around $69, is FB an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Facebook is engaged in building social products in order to create utility for users, developers, and advertisers. People use Facebook to stay connected with their friends and family to discover what is going on in the world around them and to share and express what matters to them with the people they care about. Developers can use the Facebook platform to build applications and websites that integrate with Facebook to reach its global network of users, building personalized and social products. Advertisers can engage with more than 900 million monthly active users on Facebook — or subsets of its users — based on information they have chosen to share.

Facebook already had a strong presence on mobile with Facebook Messenger. But the company reached a wider audience with the $19 billion acquisition of WhatsApp. Mobile messaging apps have increasingly become an important component of user communications. As Facebook adds more features to WhatsApp and improves quality, that will directly affect traditional telecom services such as voice and SMS. Evercore analyst Ken Sena says that WhatsApp is well-positioned to challenge the telecom industry based on its user scale, mobile OS interoperability, and daily user frequency. As WiFi and spectrum availability expands, the newer connected devices would be available with more messaging feature sets. WhatsApp’s strong reach makes it quite attractive to developers. Developer interest would help Facebook expand the experience well beyond messaging. The messaging app has a potential as an app platform between the mobile OS and other services such as commerce and payments.

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