Don’t Worry About Facebook Inc’s (FB) Awful Month

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Since Facebook Inc (NASDAQ:FB) announced earnings a few weeks ago, there hasn’t been much in the way of good news. Facebook’s path to growth is making Wall Street a bit jittery … then there’s President-elect Donald Trump, whose immigration policies may have an adverse impact on both social justice and the social network.

Don't Worry About Facebook Inc's (FB) Awful Month

Top it all off with faulty ad metrics and a flood of fake news made famous by the election, and it’s not much of a Silicon Valley mystery why Facebook stock has shed about 11% since late October.

The concerns are legitimate, sure, but investors shouldn’t get too carried away. Nothing’s changed concerning the fundamental picture, and considering its strong footholds in mobile and video, Facebook stock is a good bet for the long haul.

That said, it’s crucial that we take further stock of the issues that could weigh on the near-term price of FB stock.

Facebook Stock Will Be Great Again

The history of the adtech market is rife with misleading metrics, but there should be some worry about the flubs with measuring traffic (such as with the inflated calculations for the time viewed on video ads). Facebook is the gold standard of the digital world — the company really needs to set an example. This is absolutely critical if FB wants a bigger piece of the traditional TV market, which involves extremely demanding mega ad buyers.

The good news for Facebook stock holders is that the company is taking swift actions. This includes setting up a review board and bringing on more third-party firms to provide independent measurements.

It’s been posited that a rash of fake news and hate speech (sometimes packaged hand in hand) may have somehow swayed the presidential election. This has put Facebook stock under tremendous pressure. It’s also a big-time problem for other large online companies, like Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Twitter Inc (NYSE:TWTR).

Even though such a thing would be tough to prove, FB is not sitting still. The company wants to get more rigorous with its reporting standards and has blocked some sites. These kinds of steps should help to improve the overall experience and credibility of the platform.

Yet, the real issue that has investors in Facebook stock most jittery, though, is the growth. During the latest earnings report, Facebook CFO Dave Wehner noted that there will be a meaningful slowdown. This is fairly vague … will growth be at 40% or so? Or will it be much more subdued, say, 20%? It’s far from clear. But right now, the Wall Street consensus is for about 35%.

Still good, right? Sure. But the estimate could easily move around — especially when there continues to be negative news. In other words, there is quite a bit of sensitivity on the valuation on Facebook stock, with the emphasis being on the bearish side of things.

Actually, the upcoming Snapchat IPO may make the situation even worse. The offering looks like it will be on fire, as the company has a highly engaged user base, with daily active users at about 150 million. About 41% of them are from the ages of 18 to 34, which is an elusive demographic for advertisers to reach.

The company may also be more than a one-trick pony. Snapchat’s Spectacles — which are glasses that allow for snapping photos and videos — are red hot. There are already signs that there is no more inventory left!

If so, Snapchat will have shown that it knows how to capitalize on the potentially lucrative growth market of augmented reality. No doubt, this would be a setback for Facebook stock, if not an embarrassment to the company.

Bottom Line on Facebook Stock

Yet, it is important to keep everything in perspective. The fact is that FB has the world’s most valuable piece of digital real estate, with about a quarter of the world’s population as users.

There are also other assets that have tremendous potential for monetization like Instagram, WhatsApp and Messenger. FB is also targeting the enterprise market with Workplace by Facebook, which provides a recurring subscription revenue stream.

Besides, the valuation on Facebook stock is certainly reasonable. The forward price-earnings ratio of 23 is not only below the projected growth rate — which is often a good sign — but at a discount to other social operators like TWTR, which trades at 31 times future earnings and LinkedIn Corporation (NYSE:LNKD), whose multiple is 41.

So for investors that are looking for a good play on key trends in digital, Facebook stock does look attractive, despite some of the recent negative noise.

Tom Taulli runs the InvestorPlace blog IPO Playbook and also OptionExercise.com, which provides interactive tools and financial services for those who have employee stock options (pre- and post-IPO). Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2016/11/facebook-stock-fb-mark-zuckerberg/.

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