Everyone knows Facebook. This large social network is still growing and bringing in buckets of money, thanks to its extensive advertising program. But how can you actually invest in Facebook? And is it wise to buy or sell Facebook shares? In this comprehensive special you can read all about it!
How can you invest in Facebook?
There are two methods you can apply to invest in Facebook. You can choose to buy or sell shares yourself. Alternatively, you can use modern brokers to benefit from the smallest short-term price fluctuations. The best ways to invest in Facebook are:
How can you actively trade in Facebook shares?
You can choose to invest actively in Facebook's shares. A big advantage of active trading, is that you can also make a profit when the share price falls. Plus500 is a good broker to actively trade in Facebook with CFDs. At Plus500, you can test the possibilities risk-free with an unlimited demo. Use the button below to open a free demo account:
Where can you buy Facebook shares?
You can also choose to buy Facebook shares. This makes sense if you believe Facebook's revenue will increase even further in the future. More and more people are active on social media. This may further increase their advertising revenue. At eToro you can buy Facebook shares without paying commissions. Use the button below to open a free demo account with this broker:
What do you want to know about investing in Facebook?
- Guide: in this guide you can read how to buy Facebook shares.
- Profitability: how does the company make a profit?
- Privacy: what is the biggest risk to Facebook?
- Performance: is it wise to buy Facebook shares?
- Future: What does the future look like for Facebook?
Do you want to buy Facebook shares, but do you not know how to do it? Do not worry! In this roadmap, we will tell you exactly what you need to do before you can trade in Facebook.
Step 1: Open an account with a broker
You buy shares with a broker. It is important to choose a broker where you can buy US stocks cheaply. That way, you save a lot of money when you buy Facebook shares.
Do you want to know what would be a reliable party to invest in this stock? Check out our list of brokers and discover what the best broker is:
Next, it is important that you deposit money into your account. Consider the amount you want to buy Facebook shares for and deposit this amount into your account.
Step 2: Analyse the share
It is not wise to buy the Facebook share without a proper plan. The share price is very volatile and has gone through several developments. It is therefore important to first determine a good time to buy the stock. You can use two types of analyses.
With fundamental analysis, you can see how the company is doing financially. Based on the numbers, you can investigate whether the company will have a good profit potential in the future. You can also choose to apply technical analysis. You then examine the price patterns to determine if it is an attractive time to buy Facebook shares.
When you have decided that it is indeed smart to buy Facebook shares, you will still have to determine a solid entry point. For this, you can look at the historical rate. When the price is at a high point and you see that it often drops again at this price level, then you should probably wait awhile. You can also choose to buy the stock staggered. For example, you buy a few Facebook shares every month.
Stap 3: seal the deal
Within your broker account, you can then submit an order to buy the stock. You can use a market order or a limited order. With a market order you buy the stock directly at the current price. With a limited order, you only buy the share when the price has dropped to a certain level.
Always determine your strategy in advance. Think about what price you want to buy at and at what price you want to sell again. Sometimes it may even be wise to set up a stop loss. With a stop loss you automatically take your loss when the share price has fallen too much.
Before you start investing in Facebook, it is important to understand how the company makes a profit. At first glance, Facebook does not appear to be a (potentially) profitable company. After all, it is a company that offers all kinds of services for free. However, when you do not pay money for a product, you often end up being the product.
Facebook makes a lot of money selling ads. The social network is very popular among companies. This is because it is possible to target users very precisely. This allows you, as a company, to specify exactly which users can see your ads.
Facebook has also tapped into new revenue models. For example, in 2012 Facebook bought Instagram where it is now also possible to advertise. In 2019, Instagram already generated an additional $20 billion in revenue.
Two years later, Facebook also bought WhatsApp for $19 billion. They are already making money through WhatsApp Business and Facebook is planning to introduce ads within the app. With over 2 billion users, this will only bring in more money.
That Facebook is a company with a lot of potential should be obvious. Yet there is also a great risk to Facebook's future success: privacy. Facebook made headlines with several scandals. The scandal surrounding Cambridge Analytica received the most attention here. This agency obtained data from tens of millions of Facebook users. Among other things, the company used this data to help Trump with his campaign.
Several U.S. regulators were not satisfied with Facebook. The U.S. Federal Trade Commission, or FTC, imposed a hefty fine of $5 billion. This is of course bad for Facebook's profitability and it caused the share price to fall sharply.
To avoid these types of mega-fines in the future, Facebook will need to hire more people to protect users' privacy and security. An example of this is the large team they hired which is tasked with halting the spread of fake news.
If all this works as it should, the chance of another hefty fine decreases. At the same time, these types of measures will reduce the company's profitability. In addition, companies advertise on Facebook mainly because they have access to a lot of data. If Facebook is too limited in data collection, the network may become less attractive to users.
What do you think? Is the increased demand for privacy a threat to Facebook or will it make little difference?
Facebook is a fairly cyclically sensitive stock. When the economy is doing badly, you see that companies often spend less on ads. When companies spend less on ads, Facebook makes less money.
For example, during the corona crisis Facebook indicated that they would earn noticeably less. However, the company has more than $50 billion in cash on its balance sheet. This makes it easy to get through some terrible times.
On the whole the company is still developing well. The number of users is increasing and Facebook's revenue figures are also growing. Do you think Facebook will grow even further in the future? Then it may be interesting to buy the shares.
Facebook's long-term perspective does not seem bad. The company has a large amount of liquidity (over $50 billion) and a still growing number of users. The company's profitability is rising and by using Instagram and WhatsApp they can increase earnings in the future.
The strength of Facebook lies, of course, in the large number of users. By January 2012, the network already had 900 million users. Meanwhile, this number of users has grown considerably to 2.5 billion! Even people who do not use Facebook, are often familiar with the brand. This huge audience can be used perfectly for direct marketing.
However, there are also many uncertainties. The privacy scandals can do a lot of damage to the brand. Moreover, there is always the risk of another social network becoming more popular. So choose the right time to step in when you are going to invest in Facebook and keep a close eye on future developments.
Are you curious about the current price of the Facebook share? Below you can see at what price you can buy Facebook CFD shares directly:
A question remains: is Facebook a hype?
We must keep in mind that Facebook can just be a temporary hype. Who still remembers Myspace, the social network that was hugely popular a decade ago? Although Facebook may have a longer lifespan because of its international appeal, the question remains whether the company stays ahead of its competitors in the future.
It may well be that Facebook has the same faith as other dot com companies and, like Myspace, becomes a small player on the market. Facebook tries to prevent this by buying up all kinds of related companies. An example of a big company that Facebook bought up is the popular WhatsApp that almost everyone uses. Instagram is also owned by the blue giant these days.
At the moment, however, Facebook is doing well. The number of active users is growing and the number of hours users spend on the website is also increasing. As long as this trend continues and the company does not do anything crazy, the stock will in all likelihood continue to grow as well.
The number of active users is still increasing
Facebook's share price has always been quite volatile. Immediately following the launch, there was a huge price decrease followed by a big increase. The fact of the matter is that many novice investors buy Facebook shares because they use Facebook and can identify with the company.
A website with a large part of the world's population as a member is obviously very interesting. The only question is whether Facebook can handle the potential of such a database full of personal information without hindrance from all kinds of privacy watchdogs and troublesome governments.
However, for the smart investor this does not have to matter. By using modern brokers, you can speculate on both short-term price falls and price increases! Short selling is a strategy you can apply to profit from decreasing markets. With a short position you get a positive result when the price drops.
Since the launch of the stock, the price has shot from $38 to well over $200. This may be in part because it is a very well-known company. People who know little about shares are more likely to buy Facebook shares because it is recognizable.
Nevertheless, profits have risen sharply; in 2018, Facebook achieved a net profit of more than $5 billion and revenue of $15 billion. As long as Facebook manages to hold on to its users, the value of the stock is likely to continue to grow.
The best way to trade in Facebook shares
The most profitable way to trade in Facebook shares is to buy and sell them in the short term. This also allows you to take advantage of smaller price movements. The social network's shares seem to be responding strongly to news reports: it is therefore advisable to follow the news closely. By buying Facebook shares at the right time, you can achieve high returns.