How Facebook's Powerful Free Cash Flow Could Push Its Stock Higher
Social networking giant Facebook (NASDAQ: FB) produces bales of free cash flow. Even after it covers all its costs, it's making so much money that it has plenty of cash left to spend on buybacks and other shareholder-friendly items. Here's why the company's free cash flow is likely to keep rising – and why that's great news for investors.
Facebook makes the bulk of its money by selling ads on its social networks – and according to the company, business is good. The economy's growing, and more advertisers are competing for ad space around the same limited number of user-targeting keywords. That rising demand lets Facebook charge more to sell ads, and rake in revenue as a result.
In its Q2 2021 earnings results, Facebook's CFO reported that the company's average price per ad rose 47% in Q2 and 30% in Q1. The total number of ads sold grew 6% year over year in Q2 and 12% in Q1 – meaning the company's getting most of its sales growth by charging more for each ad, rather than selling more total ads. The CFO expects that higher ad prices will keep driving Facebook's ad revenue growth for the rest of the year.
Source Fool.com
