An 'Elite' Internet Empire With Room to Keep Growing

Today, we're highlighting another member of the "Global Elite"...

As regular readers know, here at Stansberry Research, we use this term to describe some of the best companies in the world. Global Elite companies typically dominate their markets. Because of this, there's usually tons of demand for these businesses.

And that allows them to have fortress-like balance sheets, along with ever-present sales growth and strong cash flows. For that reason, shares of Global Elite businesses are more expensive than most stocks – but they can still have room to grow.

Today's company has helped people stay connected when they couldn't be face-to-face. And its key revenue driver has tremendous tailwinds as well...

Facebook (Nasdaq: FB) operates the largest social media network on the planet...

It has more than 2.6 billion monthly active users across the globe. Instagram, which Facebook bought for the incredibly low price of $1 billion in 2012, now has roughly 1 billion users. As you're probably aware, these social media platforms are free to use.

Rather than charging subscription fees, Facebook monetizes its immense networks by selling advertising. Facebook and Alphabet (GOOGL) – the parent company of Internet-search giant Google – dominate digital advertising. Between the two, they command nearly two-thirds of the digital advertising market.

And this industry is thriving because of the COVID-19 pandemic...

As we discussed when we wrote about Alphabet in February, online advertising fell in the early days of the pandemic, when just about every company pulled back on spending to conserve cash.

But that began to change toward the second half of 2020. Both Facebook and Google – as well as other advertising-focused companies like Snap (SNAP) – noted increasing momentum in online ad demand.

In January, CFO David Wehner said that two huge trends have benefited Facebook over the past year. First, during the pandemic, more folks have been interested in buying products than services. Second, when they do buy products, they're more likely to buy them online. These are tailwinds for Facebook, since many of its ads are for e-commerce businesses.

Facebook has a fabulous business model... It's digital, highly scalable, and capital-efficient. And it benefits from the network effect – meaning that the bigger its audience gets, the stronger its business gets.

So the more people who use Facebook, the more people who are likely to join the platform and stay there. And the more the platform grows, the more companies will fight to get their ads in front of those eyeballs. That means Facebook can charge higher prices for its ads. And that's exactly what we're seeing...

Wehner said Facebook's strong first-quarter earnings and revenue were fueled by a 30% year-over-year rise in the average price per advertisement. He also said a 12% increase in the number of advertisements that the company delivered played a major role as well.

This trend is nowhere near over... Online advertising will continue to play a bigger role in the industry moving forward. Market research firm GroupM predicts that online ad spending will make up 60% of the market ($151 billion) by 2024 – up from 49% last year.

Given Facebook's market-leading position and the already-increased demand it's seeing, this should be a continued tailwind for its business.

And this trend has even more legs when you consider that most of Facebook's users are outside the U.S., and the company hasn't yet made much money from most of them...

Users outside of the U.S., Canada, and Europe make up more than two-thirds of Facebook's users, but bring in less than a third of its revenues. The average revenue per user in those areas is about a tenth of what Facebook earns in the U.S., Canada, and Europe.

Plus, Facebook hasn't even started monetizing its popular WhatsApp messaging app yet... which has another 1.5 billion monthly active users. That's not to mention the huge potential opportunities that the company has in e-commerce and gaming.

The company is sitting on a $56 billion pile of cash today. That's enough to invest in growth and new technologies for many years... which should only extend Facebook's leading position on the Internet in the years to come. And that should serve as a tailwind for shares.

Sometimes investing is simple.