If recent headlines are anything to go by, we’re in the midst of Cold War 2.0. Not a single day passes over the horizon where I don’t hear something (almost always negative) about Russia. Now, the Russians are indirectly putting the screws on Facebook Inc (NASDAQ:FB).
FB stock has weathered this political storm before, but is time finally catching up?
Watching the Washington circus, it’s hard not to get at least somewhat concerned.
Given the many crisis points that we have in the world, America is better served moving forward. Instead, we have a witch hunt against President Trump, that, while understandable, threatens domestic stability. With accusations that social media platforms indirectly facilitated Kremlin-endorsed Russian trolls, Facebook stock has yet more unfavorable news.
Despite FB shares soaring last year, the company’s success was not an easy task. One of the biggest public relations problems that management had to confront was its Facebook Live platform. Execs originally intended the application to allow its subscribers to share special moments as they happen. But because we live in a sick world, the criminally-demented used the platform to broadcast every horror imaginable.
Recently, our own Dana Blankenhorn warned investors that trouble might be brewing for FB stock. Early Facebook investor Roger McNamee is disappointed with the company’s direction. McNamee wants management to get serious about Russian trolls, and to take decisive action against their tactics.
However, Blankenhorn rightfully points out that Facebook stock is essentially a political investment. It’s deeply entrenched in the establishment. The social media giant’s “Political Action Committee is giving more to Republicans than Democrats this cycle. Asking politicians to reject big contributors is tough in any context.”
The Russians are coming, and they’re here to stay. Still, they’re not the biggest problem for FB stock.
Does FB Stock Have a China Problem?
Again, as Blankenhorn notes, the issue stems from growth. More than 2.1 billion Monthly Active Users (MAUs) back the Facebook stock price. Simply put, Twitter Inc (NYSE:TWTR) and Snap Inc (NYSE:SNAP) don’t have a chance of catching up. But how long can FB maintain this trajectory?
With 2 billion MAUs, Facebook has more than a quarter of our planet’s population. Practically speaking, the company doesn’t have many roads left to take. Of course, China is the coveted prize, but they’re not in the mood for adopting Facebook. And no matter how hard CEO Mark Zuckerberg tried to impress Chinese president Xi Jinping, results are lacking.
Obviously, without China, Facebook has a long road ahead to grow its subscriber base. That might very well incentivize investors to dump FB stock for greener pastures.
Fundamentally, though, a selloff based on growth maturation is flawed. For a social media firm, raw numbers are very important, but they’re not the most critical factor.
The goal isn’t to attract every single Chinese man, woman, and child. It’s to draw in Millennials with steady jobs who will buy the stuff advertisers throw at them. The China myth is that every Chinese is well off, which is not true. Just do the math: A country that has four times the U.S. population, but with a lower gross domestic product will have a lower GDP per capita.
In that regard, Facebook can acquire Twitter and Snapchat and have roughly the same subscriber impact as opening China’s doors. Therefore, the fear surrounding Facebook stock is a bit overstated when you carefully analyze the fundamentals.
Russia Doesn’t Matter to FB Stock
This aforementioned context is also the reason why I’m not worried about the Russian impact on FB stock. The company is already attracting the Russians that matter the most: Those who don’t interfere with our elections, and spies that look like Anna Chapman.
The rest of Russia prefers VKontakte, a social media platform made by Russians, for Russians. In other words, financially, Russia doesn’t matter to Facebook stock. It never has. The bottom line is FB can counter Russian trolls however they want (if they want) without consequences.
But will investors catch on? I’m not so sure. The fundamentals always matter, but only when investors recognize them. With raw emotions and Russia hysteria, Zuckerberg could pass wind, and FB stock might slip.
That’s why I’m not opposed to the idea of profitable investors taking some off the table.
But giving up on Facebook stock altogether? I don’t see enough reasons to panic.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.