Last week, we saw Facebook, Inc. (NASDAQ:FB) founder and CEO Mark Zuckerberg testify in front of the U.S. Congress. While Zuck seemed to take the matter pretty seriously, it felt like a farce from Congress. Some asked important and probing questions, but most just used the opportunity to hit the punching bag a few times. Ultimately FB stock rallied during the two-day testimony.
So with Mark Zuckerberg finished on Capitol Hill — for now — where does that leave Facebook stock? FB stock was up almost 5% for the week, as investors are breathing a big sigh of relief now that the CEO’s testimony is done.
Obviously the user-data issue isn’t good, but let’s face the facts: Aside from a few days of Congressional grilling, there’s unlikely to be any big-time regulations handed down to social media players. Talk of increasing regulations may temporarily hit the group — Twitter Inc (NYSE:TWTR) and Snap Inc (NYSE:SNAP) included — but ultimately, business will go on.
Evaluating FB Stock
Well, it will go on … right? It will indeed. Talk to almost any advertiser and the Facebook platforms are the go-to names when it comes to reaching their customers. For that reason, revenue will continue to boost the top line and trickle down to the bottom line. Will Facebook ever charge its users? Almost with 100% certainty I would say no. It would instantly reverse its user growth and crush current usage numbers. However, I can say with 100% certainty that advertisers will continue to pay.
Analysts expect sales to grow 36% this year and another 27% next year, an impressive feat for a $480 billion market cap company. On the earnings front, estimates call for 35% growth this year and 21% growth next year.
Make no mistake: Facebook will likely be more selective with advertisements (especially with this year’s midterm elections) and it will pour resources into improving its user experience. That could cost it in both revenue and earnings in the short term, but should be a benefit in the long term. Remember, it’s still the premiere platform for advertising.
If it’s going to feel a pushback from users and advertisers, it’s going to come in this quarter. When the company reports earnings on April 25, we’ll get a look at just how much of an impact there was. If it was minimal, look for FB stock to rally. If we get a big selloff though, it may be worth watching for a buy.
What About FANG?
We can’t forget about FANG — Facebook, Amazon.com, Inc. (NASDAQ:AMZN), Netflix, Inc. (NASDAQ:NFLX) and Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG). If this group is on the way up, it very well could “put a bid” under FB stock price.
If President Trump stops tweeting about Amazon for a little while, we could see a big breakout in the name. On Twitter, I also highlighted potential breakouts in GOOGL and in NFLX.
All that leaves then is FB. With Mark Zuckerberg finished with his testimony and the stock already hit, what reasons are left to sell the stock? I’m not saying a drop back down to $150 can’t happen. Only that if FANG plays ball, it should help FB stock rally.
While a rally could easily occur, it should be noted that with what’s going on at Facebook, it’s hard to imagine the stock finding its way back to new highs anytime soon.
What To Do With FB Stock
That brings us to FB stock. Earlier this month we said we’re buyers of Facebook stock. This was when shares were trading at $153. We noted that, “I wouldn’t go all-in on Facebook stock yet. But nibbling a starter position now for a longer-term investment is a bet that FB is still relevant in 6 months, 12 months and 24 months.”
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I think that stands true — and the thing is, FB stock is cheap! Shares trade at just 22.5 times this year’s earnings estimates and a paltry 18.6 times next year’s earnings. Not only is it cheaper than SNAP and TWTR, but it’s cheaper than all of FANG and even many blue-chip, dividend titans, considering Facebook’s growth.
While its financial results could come under pressure, consider that FB hasn’t missed an earnings estimate in four years and has missed a revenue estimate just once in that span.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell held a position in GOOGL.
