Is Facebook a good investment? The company has faced more than its share of tribulations in the last two years, with founder Mark Zuckerberg getting called on the carpet before Congress and Federal regulators circling in the wake of data privacy breaches. At the same time, the company has forged ahead, maintaining its top position in the social media field, launching a cryptocurrency initiative, and, of course, keeping up the profit stream for shareholders. It’s worth looking at the stock’s recent performance to put the forecasts into context.
Facebook, Inc. (FB) stock closed July 12 at $204, after gaining nearly 2% in the day’s trading. It was a fine performance for the stock, and capped a 24.3% gain since FB shares bottomed out on June 3 at $164. You can see the roller-coaster performance of the company in the three-month share-price chart.
The bottom came just after the US Department of Justice (DOJ) announced it was initiating an antitrust probe into Google parent company Alphabet, Inc. (GOOGL). The move by DOJ prompted fears – not yet fully alleviated – that other tech giants may also be in the regulators’ crosshairs.
In a more immediate regulatory threat to Facebook, the Federal Trade Commission (FTC) on July 12 announced a $5 billion fine against Facebook, as a penalty for customer privacy violations primarily resulting from the Cambridge Analytica fiasco. Company management has anticipated losing the regulatory appeals in the matter, and in early spring set aside $5 billion lump sum for fine payment. The bookkeeping move caused FB to miss its Q1 EPS results by over 90%; in setting aside the money for future fines, the company had to adjust its quarterly earnings. Management chose to take the hit in advance, rather than wait for the FTC ruling.
Now that the ruling is known, and it’s seen to be at the higher end of the forecast, Facebook can pay it and get on. As far as investors are concerned, the FTC fine, and the payment, closes out the worst of the immediate data privacy concerns.
The most important upcoming date for FB investors, in the near-term, is the company’s July 24 Q2 earnings report. Expectations are for $1.90 EPS, an 11% gain over the year-ago quarter.
The next major milestone, for FB, will be the launch of the social media giant’s Libra project, a new cryptocurrency based on the stablecoin concept. Libra was announced last month and is forecast to launch next summer. To allay the inevitable fears about data privacy – fears amplified by Facebook’s poor reputation in this area attaching to a move into online finance – the company has created a consortium, the Libra Association, to govern the new cryptocurrency. While Facebook will be a member, it will be one voice among many. The Libra Association’s 28 members at present show a heavy tilt toward both venture capital and online payment firms tends; it is not reassuring to data libertarians.
Top Analysts Weigh in on Libra and Earnings
Jefferies top analyst Brent Thill, writing at the start of July, took privacy issues into account in his research note on Facebook – and came to an unexpected conclusion. He wrote, “Facebook’s Libra is unlikely to be a near-term game-changer for the company. After surveying 600 U.S. social media users, most of those surveyed said they were unlikely to use the cryptocurrency. A lack of trust in Facebook and existing mobile payment wallets are impediments to adoption.”
Even with his bearish view of Libra, Thill still takes a bullish stand on Facebook stock, basing his outlook on the opportunity presented by Facebook’s core advertising activities. He foresees annual EPS at $10 within two years, and gives the stock a $230 price target.
An Earnings Forecast
On July 9, Ross Sandler of Barclays, focused on earnings in review of Facebook stock. He predicts strong results in the upcoming Q2 report. “We expect FB will report revenue and EPS above our estimate and consensus and would add to positions into the print.” He adds that, “We think FB shares can continue to move higher.”
He supports that belief with a bullish view of FB’s e-commerce and messaging strategies. Messaging is already profitable for the company; he sees Libra as a move toward further monetization of e-commerce services, by providing a secure payment platform. In his enthusiasm, Sandler says that Facebook, at current valuations, is “too cheap to keep ignoring.” He puts a $240 price target on the stock, suggesting an upside potential of 17%.
The Macro View
Overall, Facebook holds a strong buy from the analyst consensus. The consensus is based on 35 buy ratings and 4 holds given in the past three months. Shares are selling for $204, with the $222 average price target giving an upside potential of 8%.
Visit TipRanks’ Stock Screener, for up-to-date details on Facebook’s market performance.
