This Tech Leader Will Double by 2018

10 | By Michael A. Robinson

I’m not afraid to make bold predictions.

That’s particularly true when it comes to placing a target price on a fast-moving tech leader.

You folks know all about my prediction that Apple Inc. (Nasdaq: AAPL) will reach a split-adjusted price of $1,000 a share by Labor Day 2016.

Turns out, the stock is ahead of my projections. It’s now at $130, just 9.9% from hitting that milestone ($142.85 post-split), with 19 months until my target date.

I bring this up to make sure you all know that when I make my next big call I have the track record to back it up.

And I’m going to make that call right now – it’s one that will double your money by 2018.

Let’s get started…

The Social Network

So let’s talk about why I predict that Facebook Inc. (Nasdaq: FB) will double to $161.36 a share in the next three years.

But before we do that, let’s talk about why Wall Street just doesn’t seem to understand the incredible value the stock represents.

I think the reason is simple. Many on the Street just don’t trust Facebook because they still think of it as a social networking site for young people.

As the saying goes, “That was then this is now.” Facebook has moved well beyond its early days as a site just for teens and young adults to friend each other online.

Facebook is now, indisputably, the world leader in the social networking market, one that forecasters IBISWorld estimates at $9 billion. The research firm says that between 2009 and last year the industry grew by 36% a year.

And within that rapidly growing social networking market, Facebook is a business that meets the mandate of Rule No. 5 of my Tech Wealth Secrets“Target stocks that can double your money.”

Here’s why.

Facebook maintains the largest social networking user base. In last year’s fourth quarter, it had nearly 900 million active users. And its total user base now stands at nearly 1.4 billion.

To put that in perspective, Facebook’s user base is higher than the population of China, the world’s most populous nation.

That sounds impressive. But the number actually understates Facebook’s global impact, because more than 60% of the world’s 7 billion people have yet to get online.

Here’s how that translates: Half of everyone online now uses Facebook.

It’s Where the Growth Is

Here’s another reason the Street discounts Facebook. Analysts just don’t realize what a vital role the firm plays in the mobile revolution.

And mobile is where all the growth in Web traffic is these days.

Data compiled by the mobile industry trade group CTIA reveals that U.S. mobile data usage jumped more than 90-foldbetween 2009 and 2013 -up from 35 billion megabytes to 3.2 trillion.

And comScore says the time we spend online has passed the tipping point in mobile’s favor – around the beginning of 2014, Americans started spending more time online with their mobile devices than with their personal computers.

Between March 2013 and June 2014, time spent online using desktop computers fell nearly 25% to 40%. And surfing the mobile Web grew more than 27% during those 15 months, to account for 60% of time spent on line.

Along the way, Facebook became a mobile juggernaut. In last year’s fourth quarter, it had about 745 million mobile users active on a daily basis, a 34% increase from the year-ago quarter.

And the company is doing a great job of turning the trend into money.

Mobile ad sales in the quarter represented roughly 69% of total ad revenues. That’s a 30% annual gain from mobile ad sales’ 53% share in the fourth quarter of 2013.

Beyond mobile ad sales, Facebook is working overtime to broaden its revenue base.

App-etite for Growth

Early last year, Facebook made the controversial move to buy the mobile messaging service WhatsApp for $19 billion. At the time, the price was roundly criticized because WhatsApp only charges its users $1 a year.

However, WhatsApp has helped fuel Facebook’s impressive growth, especially overseas, where the app is highly popular. The service has more than 450 million users.

If Facebook gets just $10 a year in sales from each WhatsApp user – a viable proposition – that would translate into $4.5 billion in new annual revenue.

Meantime, Facebook continues to invest in corporate systems that lower its costs and improve its operating margins.

Facebook has quietly designed new hardware and software that makes its computer networks run better. The move not only improves the user experience but also means the company doesn’t have to buy extremely expensive computer networking gear from other vendors.

It recently introduced a new series of network switches and its own software that together can move all that massive Web traffic Facebook generates more efficiently.

The company hasn’t said how much changes like that will save it in the long run. But anything that improves profit margins is a win for Facebook and its investors.

And then there’s Facebook’s move into virtual reality.

Last year, Facebook paid $2 billion for virtual-reality head-mounted display developer Oculus VR. The reason: Facebook execs are convinced that the company’s Oculus Rift technology has enormous potential for online and mobile gaming and movies.

The consulting firm KZero Worldswide projects sales of consumer VR systems (such as Oculus Rift) growing from 2,000 units in 2014 to 10 million in 2018. That translates into a $4.7 billion market in 2018, up from about $1 million in 2014

That’s 469,900% growth.

How It Doubles

Facebook opened at $80.68 this morning, giving it a market cap of $224.45 billion. It has operating margins of nearly 40%.

To put that in perspective, Facebook’s operating margins are 60% higher than those of online search leader Google Inc. (Nasdaq: GOOGL). But Google trades at more than five times the price of Facebook.

Here’s why Facebook is clearly on a path to double its stock price from here. Over the past three years, it has grown its earnings per share by an average of 57%.

To be conservative, let’s cut that figure in half, to 28.5%. Now, let’s project how long it will take for Facebook to double from here.

We do that using my “Doubling Calculator” – also known as the Rule of 72. If we divide 72 by Facebook’s 28.5% earnings growth rate, we find that profits will double in just about 2.5 years.

Remember, price appreciation follows earnings growth. So, giving Facebook a full three years – till February 27, 2018 – to reach $161.36 is both conservative and realistic.

As I’ve shown you, Facebook still offers investors plenty of upside. Even better, it’s a big-cap firm, so it should remain less volatile than the overall market.

That makes Facebook a great long-term tech play that can really improve the value of your portfolio – and put you on the road to wealth.

I’ll see you back here in three years – I think we’ll all be very happy with our investments in Facebook.

P.S. I encourage you to “Like” and “Follow” me at Facebook and Twitter. There you’ll find communities of friends, colleagues and readers who are eager to make big money in tech stocks not in some future time… but right now – today.

Editor’s Note: Are you invested in Facebook? Are you going to buy in now? Let us know in the comments below. We love hearing from you.

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10 Responses to This Tech Leader Will Double by 2018

  1. Max says:

    My concern is for all social media. This is a somewhat negative comment, but I personally believe they will not be able to prevent a massive hack which will begin to deflate the social media bubble. Several small events have happened to well known people so the threat is not “real” at this point. The millennials have nothing to lose and no experience to base a loss on. As this group becomes employed and gains status through a home purchase or other assets, it will only take one major “event” to have them close there account which will begin the deflation. Basically it is a house of cards being built day by day.

  2. aram says:

    “Facebook’s operating margins are 60% higher than those of online search leader Google Inc. But Google trades at more than five times the price of Facebook.”

    So what? There is no connection between those two things.

  3. Dennis Morrow says:

    Okee-Dokee. Facebook to double in three years? Sounds a safe prediction, with the volatility going on. Plus, there is no mention of where all those Twitter accounts could land? Fairly safe, though, at this place in time. Heck, I would demand a double in three years time! Now, should you say three months time, how different is that? Then, perhaps I may say ‘nope!’. I do not really care for FaceBook, at all. Plenty of users really disagree with me, and make the ‘Book’ a great play. Making money is nothing personal, so whatever the handle, perhaps the three year play could provide a purpose. Though, I believe other, perhaps better, opportunities abound ? With shorter time frames to boot!

  4. Mohammad azher says:

    I don’t no how to buy directly share of companies.
    Because brokers charge a lot of commissio.

  5. Teresa Ramsey says:

    I have about 0 knowledge. I have no idea where to start. How to buy or sell any of this. I recently opened an Individual acct. with TIAA-CREF broker. They hold my retirement fund. They will charge me $14.95 for ETF & $50.00 for ones like Vanguard they said. Outrageous compared to eTrade u just listed in an above response to a question. Who can I get hooked up with who will honestly help me? I was forced to retire (medical reasons) & my husband is an extremely hard working mechanic & welder. We can’t afford not to try this but also we can’t afford to do this all wrong! Please advise. I have received sooo many e-mails since I joined this. Please mark the response so that I will recognize it as a response to this.
    Thank You for your time, Teresa

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