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Since the June 20 Facebook stock split vote passed, investors have been asking us, "Will the Facebook stock split happen in 2016?"
Here's the answer: If the Facebook Inc. (Nasdaq: FB) stock split is anything like the Alphabet Inc. (Nasdaq: GOOG, GOOGL) stock split, it won't happen until 2018.
The Facebook stock split faces similar issues as Google did before it could split its stock.
This is why it could take so long...
Why the Facebook Stock Split Could Take Two Years
In 2012, Google co-founders Sergey Brin and Larry Page controlled nearly 70% of the voting power for Google, now known as Alphabet.
But because the tech giant had been criticized for its long-term projects that lose money - like its "Other Bets" sector - the founders wanted to make sure they could always run the company without putting all of their focus into short-term growth.
In a 2012 shareholder letter, Page said that he and Brin wanted to protect Google from outside pressures that wanted the company to sacrifice future opportunities because of short-term demands.
This part of Google’s business includes smart-thermostat maker Nest, life science research organization Verily, the high-speed Internet unit Google Fiber, and projects in self-driving cars and Internet balloons.
Even though Brin and Page controlled the majority of the company, activist investors could acquire enough stake in Google to try and pressure Brin and Page to change Google's long-term plans.
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For example, activist investment firm Starboard Value LP only owned a 1.7% stake in Yahoo! Inc. (Nasdaq: YHOO) as of March, according to Reuters. But because of constant pressure from Starboard to unlock more shareholder value, Yahoo gave up four board seats to the activist investment firm at the end of April.
So in order to keep voting power and do what Brin and Page thought was best for the company, the duo announced a plan for a 2-for-1 stock split on April 12, 2012. Every shareholder would get two shares of GOOG for each share they already owned.
But before the split could happen, a pension fund sued Google. It claimed that the 2-for-1 stock split Google proposed was unethical. The lawsuit alleged Brin and Page were insulating themselves from the voices of common shareholders.
In June 2013, Google settled with the plaintiffs before going to court. The lawsuit, though, caused the split to be delayed until April 3, 2014.
And just like Google, Facebook is being sued over its stock split.
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A shareholder filed a class-action lawsuit against Facebook on April 30. The lawsuit claims the Facebook stock split is unfair to shareholders because shareholders don't receive any value from the split. Zuckerberg gets to retain control of the company even while he sells off his shares to support his Chan Zuckerberg Initiative.
Zuckerberg will have to fight or settle this lawsuit before the official Facebook stock split date can be set. If it takes Facebook as long as Google to settle the lawsuit, the stock split could be delayed until 2018.
And we don't want Money Morning readers waiting until then to purchase more shares of FB.
Make This Move Before the Facebook Stock Split Date
So far in 2016, Facebook has rewarded its shareholders with market-beating gains. While the Dow Jones Industrial Average has climbed just 3.67%, FB stock has climbed 22.55%.
And Facebook showcased just how strong of a company it is in Q2.
Facebook demolished Wall Street's expectations in its Q2 earnings report. Analysts expected earnings per share (EPS) of $0.82 on $6.02 billion in revenue. Facebook reported $0.97 on $6.44 billion. Facebook also beat out monthly active user (MAU) expectations of 1.69 billion by reporting 1.71 billion MAUs.
That's impressive - but it's the future profitability that makes Facebook stock worth purchasing now before it climbs even higher ahead of the Facebook stock split.
Because of Zuckerberg's visionary leadership, he's invested in companies that will generate billions of dollars for Facebook.
In 2012, analysts couldn't understand why Zuckerberg purchased photo app Instagram for $1 billion. At the time, there were 30 million users on Instagram, and it didn't make money. Today, Instagram boasts over 500 million MAUs.
In terms of revenue, analysts project it brought in between $650 million to $750 million.
By 2020, Instagram's revenue is projected to climb to $9 billion. That's an increase of 1,100% from the projected revenue in 2015.
But Zuckerberg wasn't content with just one new billion-dollar revenue source...
Facebook Bets on Virtual Reality
Just like with Instagram, analysts scoffed when Facebook paid $2 billion for Oculus VR, a virtual reality (VR) company. Currently, VR technology is used mainly for games.
But Zuckerberg wasn't eyeing computer games when he purchased Oculus...
Eventually, the 32-year-old CEO believes you will use Oculus Rift to:
- Watch sporting events from front-row seats
- Have patients and doctors meet face-to-face in the comfort of their own homes
- Connect children with teachers around the world
Research company Tractica believes sales from VR content, accessories, and head-mounted displays will generate $21.8 billion in sales by 2020.
Because of all these growing revenue sources, analysts have a one-year price target of $153.88. That's a potential profit of 20% from today's opening price of $127.98.
But Money Morning Director of Tech & Venture Capital Michael A. Robinson has an even more aggressive price target ahead of the Facebook stock split. By 2020, Robinson believes the FB stock price will trade for $250 per share.
In less than four years, that's a potential profit of 95%.
So ahead of the Facebook stock split, investors will want to add to their positions or lock in a position now. The Facebook stock price is currently at a 48% discount from where Robinson projects it will trade in 2020.
The Bottom Line: An official Facebook stock split date has not been set. But if the FB split is anything like the Google stock split, it could take two years before the official Facebook stock split date. Money Morning readers should not wait until the split, though, to buy shares of FB stock.
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