Facebook or Tesla: Which Company Will Reach $1 Trillion Valuation First?

NASDAQ: FB | Facebook, Inc. -  News, Ratings, and Charts

FB – Currently, there are only four U.S.-listed stocks that have surpassed the $1-trillion market capitalization level. Facebook (FB) and Tesla (TSLA) are deemed to be next in line to do so, with their respective $700 billion-plus current valuations. Though both the stocks have a long way to go to reach trillion-dollar status, let’s find out which of them might move faster to join the elite group.

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Tech-giant Apple, Inc. (AAPL) became the first-ever company to cross the $1 trillion market value mark in 2018, followed closely by Amazon.com (AMZN), Microsoft Corporation (MSFT) and Alphabet (GOOGL).

With the stock market now on a bullish  run, Facebook, Inc. (FB) and Tesla, Inc. (TSLA) are locked in a tight race to become the fifth publicly-listed U.S. company to hit  $1-trillion in market capitalization.  In fact, FB is the only FAAMG  (Facebook, Amazon, Apple, Microsoft, and Alphabet’s Google) stock that has not yet  reached $1 trillion in value.

Both stocks have generated decent returns over the past five years. While FB has returned 155.7% over this period, TSLA gained 1,625.7%. In terms of past year performance, TSLA is a clear winner with returns of  737.1%  versus FB’s 23.9%. But which of these stocks will hit a $1 trillion market valuation first? Let’s find out.

Business Structure and Latest Movements  

FB develops products that enable people to connect and share content with friends and family through mobile devices, personal computers, virtual reality headsets, and in-home devices worldwide. The company’s products include its social media platform Facebook, Instagram, Messenger, and WhatsApp. It also provides the Oculus ecosystem, which allows people to come together and connect with each other through virtual reality.

FB has been severely impacted by Apple’s recent privacy policy changes. AAPL will now require users to opt-into being tracked by advertisers and others when they open an apps on their Apples devices. The change is expected to dramatically impact the ability of advertisers to target ads the way they have been, since people likely won’t opt-in to letting apps track them. Also, On November 25, France levied a digital tax on tech giants such as FB r, amounting to 3% of the revenues generated.

TSLA designs, develops, manufactures, and sells electric vehicles (EVs), EV powertrain components, and stationary energy storage systems in the U.S., China, and internationally. TSLA operates primarily through the following segments – Automotive, Energy Generation, and Storage.

On January 2, TSLA said it delivered a record 180,570 vehicles during the fourth quarter of 2020, representing an early 30% increase pared to the preceding quarter. The company delivered 499,550 vehicles in 2020 but fell short of CEO Elon Musk’s target of 500,000.

TSLA also plans to launch three new electric vehicles soon, including the Tesla Cybertruck and two electric cars. The company  is reportedly planning to launch its products in India this year and further expand in China, while opening new factories in Texas and Germany. Moreover, after months of speculation, TSLA was finally been added to the S&P 500 Index last month after five consecutive quarters of profit.

Recent Financial Results

In the third quarter that ended September 30, 2020, FB’s revenue increased 22% year-over-year to $21.47 billion, due primarily  to a rise in the advertising revenues. Daily active users (DAUs) were 1.82 billion on average for September, an increase of 12% year-over-year. And EPS came in at $2.71, rising 28% compared to the year-ago value.

In the third quarter, TSLA generated $8.77 billion in revenue, a 39% advance ear-over-year, driven by a 44% year-over-year rise in vehicle deliveries. Energy generation and storage segment generated $579 million in revenue, rising 44% year-over-year as the business hit record deployments of 759 MWh. Its non-GAAP EPS came in at $0.76, more than doubling year-over-year.

Here TSLA is in an advantageous position.

Past and Expected Financial Performance

FB’s revenue and total assets have grown  at a CAGR of 29.4% and 22.8%, respectively, over the past three  years.

Analysts expect the company’s revenue to increase 24.7% for the quarter ended December 31, and 23.9% in the current year. FB’s EPS is expected to grow 24.6% in the December quarter, and 12.2% in the current year. Moreover, its EPS is expected to grow at a rate of 16.6% per annum over the next five years.

In comparison, , TSLA’s revenue and total assets have grown  at a CAGR of 37.9% and 17.6%, respectively, over the past three years.

Analysts expect TSLA’s revenue to increase 36.9% for the quarter ended December 31, and 46.4% in the current year. The company’s EPS is expected to grow 119.5% in the December quarter and 69.3% in the current year. Moreover, TSLA’s EPS is expected to grow at a rate of 396.7% per annum over the next five years.

TSLA has an edge over FB here as well.

Profitability      

FB’s trailing-12-month revenue is nearly 2.8 times TSLA’s. In addition, , FB is more profitable with a net profit margin of 32% versus TSLA’s 2%.

FB’s ROE and ROA of 23.9% and 11%, respectively,  compare favorably with TSLA’s 5.6% and 2.7%.

Valuation

In terms of forward P/E, TSLA is currently trading at 577.42x, 1,895% more expensive than FB, which is currently trading at 28.95x. Also, , FB is less expensive in terms of trailing-12-month P/S (9.78x versus 23.97x). However, TSLA’s forward PEG of 4.88x is 225% higher than FB’s 1.50x.

In terms of trailing-12-month price/cash flow as well, TSLA’s 160.22x is 601% higher than FB’s 22.84x.

Though TSLA looks much more expensive compared to FB, we think it’s worth paying this premium considering TSLA’s significantly higher earnings growth potential.

POWR Ratings

While TSLA is rated “Strong Buy” in our proprietary POWR Ratings system, FB is rated “Neutral.” Here are how the four components of overall POWR Rating are graded for FB and TSLA:

FB has an “A” for Industry Rank, a “B” for Buy & Hold Grade, a “C” for Trade Grade, and a “D” for Peer Grade. In the 67-stock Internet industry, it is ranked #16.

TSLA has an “A” for Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank. It is ranked #1 in the 39-stock Auto & Vehicle Manufacturers industry.

The Winner

Both FB and TSLA are good investments considering their market dominance and superior pace of expansion in their respective businesses. Analysts predict both of these companies will make it to the $1 trillion market capitalization quite  soon. However, TSLA appears well positioned to move faster to join the elite group based on the factors discussed here.

FB is currently facing major headwinds, with the New York State Attorney General having the company in her crosshairs, with allegations that the company has and continues to illegally stifle competition to protect its monopoly power.

Conversely, , TSLA is presently dominating the new world of “computer on wheels,” with record revenue growth and five consecutive quarters of reporting profits. The company’s share price exploded in 2020, making it the world’s most valuable automaker, worth as much as the combined market cap of the nine largest car companies globally. There has been growing excitement among the investors about the world going electric, with TSLA is undoubtedly well positioned to ride (or drive)  the wave.

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FB shares were trading at $268.39 per share on Thursday afternoon, up $5.08 (+1.93%). Year-to-date, FB has declined -1.75%, versus a 1.35% rise in the benchmark S&P 500 index during the same period.


About the Author: Sidharath Gupta


Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...


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