Facebook, Inc. (NASDAQ:FB) stock had been off to a hot start in 2018, quickly churning out new all-time highs. In fact, all of FAANG has been — that being Facebook, Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), Netflix, Inc. (NASDAQ:NFLX) and Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG).
While the others haven’t faltered though, FB stock has. What gives?
When the company last reported its quarterly earnings, CEO Mark Zuckerberg said he expects capital expenditures to rise. In fact, these were his exact words:
“We’re serious about preventing abuse on our platforms. We’re investing so much in security that it will impact our profitability. Protecting our community is more important than maximizing our profits.”
However, that didn’t really hurt the stock at the time, thanks to its robust underlying business. Instead, it was recent commentary from Zuckerberg regarding the news feed. The CEO decided it was time to make “meaningful social interactions” more important than sponsored content.
Of course that shook investors, given that FB could place a lower priority on advertising and, thus, impacting revenue and sales growth. While Zuckerberg didn’t directly say Facebook would lower ad exposure, that’s the cautious view many investors have from the announcement.
What Do We Do With Facebook Stock?
The company is clearly taking steady aim at fake news (the real kind!) and improving user experience. From a long-term investing perspective, it’s hard to hate on Facebook for improving the final product. It’d be like an epidemic heading toward McDonald’s Corporation (NYSE:MCD) and the burger giant not tweaking its recipes.
In the short term, of course it could have a hit. But what’s more important? That FB stock takes a short-term hit now, or that the Facebook platform is still relevant five or 10 years from now? Obviously, the latter is more important. Plus, Zuckerberg deserves investors’ trust at this point.
I’m usually all for improving the product or user experience. Starbucks Corporation (NASDAQ:SBUX) takes great care of its workers, and thus, a better customer experience occurs. Same with Costco Wholesale Corporation (NASDAQ:COST). In the case of Facebook, I still feel the same way: make the customer experience better.
Ultimately, that almost always leads to financial success as well.
Trading FB Stock
While I support the company’s decision to improve the user experience, it does come with some potential negatives. Case in point, Stifel analysts pointed out that while these changes are the right move for long-term sustainability, it could be a bit rocky in the short term.
Despite the massive rallies in the U.S. stock indices, FB stock isn’t playing ball. In fact, it’s been downright disappointing. Falling from recent highs near $188, Facebook nearly touched $175 a few days later. It’s bounced a bit since, but not in convincing fashion.
Should we buy now?
I don’t think so, and I’ll tell you why. All the other FAANG stocks are trading great right now. They’re either making new highs or consolidating near new highs. That’s not the case for Facebook. If FB stock isn’t rallying when the markets are strong, what’s it going to do when there’s an inevitable pullback?
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Further, if we’re short-term traders, why not play the hot hand rather than the sputtering Facebook stock? I would rather buy AMZN, GOOGL or NFLX on a breakout, all of which are pushing on the cusp for more highs. Even Apple stock has been trading well, despite a bevy of mixed reports about the iPhone.
A closer look at the charts gives me even more conviction about my sentiment. The 50-day moving average hasn’t been a major level of support, and we don’t have enough data about the 100-day moving average. While it’s holding up over prior resistance near $175, it’s not enough to get me on the long side.
The Bottom Line on Facebook Stock
Just like when Howard Schultz, then-CEO of SBUX, shut down all of the stores early one day to retrain baristas on how to pull the perfect espresso shot, I believe short-term pain will result in long-term gain for FB.
However, that doesn’t mean I want to jump in at any price and hope it works. From an investment standpoint, I’d rather wait for a better price or more clarity, whichever comes first. From a trading perspective, there are better horses to bet on right now.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell held a long position in SBUX.
