Is Facebook Inc (NASDAQ:FB) about to lose face? At cursory glance, such a notion seems ludicrous. The company is the undisputed king of social media, putting Twitter Inc (NYSE:TWTR) and especially Snap Inc (NYSE:SNAP) to shame. But recently, the Facebook stock price hasn’t quite reflected broader enthusiasm for its core business.
Long-term investors don’t need to hit the panic button yet.
Even those that got in relatively late to the game are likely profitable. Year-to-date, the Facebook share price gained nearly 48%; not too shabby for an investment many are beginning to question. Even against a nearer-term context, FB stock is only down 0.3% from its all-time closing high.
Still, the questions regarding the Facebook stock price won’t go away, and may linger for some time. The sentiment reversal has both a fundamental and technical explanation. The most scandalous account involves the Russians; specifically, allegations that the company knew about Russian-sponsored U.S. political ads on Facebook before publicly admitting awareness of the issue.
In a geopolitical climate where distrust of the president, Russia and corporate America runs high, the allegation was stunning. Bear in mind that the Equifax Inc (NYSE:EFX) security breach happened weeks ago. Americans are forgiving people, as I’ve previously argued, but their generosity of spirit needs time to materialize.
On the technical front, we’re not seeing a dramatic turn for the worst; in fact, the Facebook share price recovered the losses from the Russia controversy. But as InvestorPlace feature writer James Brumley notes, FB stock failed at resistance around $173.30. The more frequently the bulls fail at driving shares higher, the likelihood of a bearish response increases.
Can the Facebook stock price finally break free? Or should investors instead seek cover?
The Facebook Stock Price Can’t Get Past Itself
As much of a stalwart as FB stock is, the bearish argument is difficult to ignore. Prior to the political fiasco, the company faced tough inquiries about its Facebook Live application. Although the vast majority of users operate the program as it was intended, a deranged few used the platform to broadcast horrific crimes. More controversy is exactly what the Facebook share price does not need.
Even financial performance, one of the company’s core strengths, has been found wanting. InvestorPlace’s Tim Biggam warned that although FB had a solid second-quarter earnings report, revenue was a different story. At $9.32 billion, it only beat consensus estimates by little more than 1%.
A major risk for the Facebook stock price is the social-media giant’s own success, which could victimize it. The company boasts over 2 billion monthly active users (MAUs) and 1.32 billion daily active users (DAUs). To put these numbers into perspective, we have over 7.4 billion people on Earth; essentially, more than a quarter of the global population is on Facebook, and frequently.
This is where the law of large numbers comes into play, and not favorably for FB stock. When you’ve already achieved global domination, where do you go from here? The quick and easy answer is China and the emerging Asian markets. However, in reality, Asia is a tougher nut to crack than some folks may realize.
China has their own Weibo Corp (ADR) (NASDAQ:WB) network. In Japan, Yahoo is extremely popular, and outranks Alphabet Inc (NASDAQ:GOOG,NASDAQ:GOOGL) in search-engine volume. This goes to show you that different cultures and regions may have different tastes and priorities.
FB stock is comparatively Unattractive against the Competition
Of course, dominant market share is a good thing. Indeed, I’ve cited MAU statistics in the past to craft bullish arguments for FB stock. But when you’re dealing with the markets, you’re also dealing with human psychology.
For over two months, the Facebook share price has struggled to break past upside resistance. Those who have profited tremendously are likely to interpret this consolidation as an ideal selling point. Others may look at the modest top-line sales that Biggam mentioned, and instead seek out investments with positive momentum.
I doubt many people are interested in going all-in on Twitter or especially Snapchat. As much as I’m long-term bearish on these two names, I admit that they’re sexier than FB stock right now. Those who missed the boat with FB would rather jump on the next big thing than hold someone else’s bag.
But at the end of the day, I’m only questioning the company on the near to intermediate term. Management faced tougher challenges than this, so I’m sure the Facebook stock price will come roaring back. But for right now, I’m steering clear until the dark clouds dissipate.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
