In just a few short weeks, social media giant Facebook Inc. (NASDAQ:FB) has seen its share price drop from $185 to $155, due in large part to a data breach that shared millions of users’ data with analytics firm Cambridge Analytica back in 2015. It’s time to buy Facebook stock, because an opportunity like this one doesn’t come around often.
Even though the event cast an unflattering light on the platform, investors should use this opportunity to heed the sage advice of investment superstar Warren Buffett, “Be fearful when others are greedy and greedy only when others are fearful.”
We’ve seen it time and time again, bad press shines a negative spotlight on an otherwise strong company, the stock tanks for a short period but eventually things pick up when the public forgets all about what happened.
Look at European automaker Volkswagen (OTC:VLKPY)- the company’s emissions scandal broke in September 2015 bringing the stock down to $20 per share as the news came out. Fast forward two years later and VLKPY has doubled its share price and paid out a nice dividend along the way to investors who were willing to wait out the turbulence.
I believe what happened with VLKPY is a similar situation to what’s happening with FB stock. The data breach is bad, there’s no question about that but it’s not life threatening for Facebook stock and it creates a great entry point into an otherwise expensive company.
What About Ad Revenue?
Investors have been spooked by the data breach because they’re worried about how the scandal will impact Facebook’s ad revenue. FB investors have already expressed concern over CEO Mark Zuckerberg’s plans to put user experience above profits, so another blow to the firm’s ad revenue is has sent many running for the hills.
Analysts at Morgan Stanley said as much when they lowered the Facebook stock price target from $230 to $200 earlier this week. MS analyst Brian Nowak said the scandal could cause users to “opt out of sharing data with FB” and that the company will likely have to increase capital spending in order to better protect user data moving forward.
I agree with half of Nowak’s sentiments. It’s true that FB is going to lose out on ad dollars as the company becomes choosier about who it partners with and how ads are displayed, and the company’s spending will certainly increase as data protection becomes a priority.
However, didn’t we already know that? During the firm’s Q4 earnings call, Zuckerberg told investors that both security and the user experience were going to have to come above profits this year. Sure, the data breach has highlighted Facebook’s need to tighten up security and pay more attention to advertisers, but investors were already aware of management’s spending plans.
Facebook Stock Benefits from Loyal FB Users
As for the worries about users opting out of sharing things with Facebook, I’m not sure I agree. For one, people have been talking about privacy issues on Facebook for a long time. The Cambridge Analytica shouldn’t come as a huge shock to the majority of people using the social media platform.
Not only that, but the ordeal really only affects people living in the U.S. Facebook’s international users are likely to see the data breach as little more than a blip on their radar.
Finally, people are quick to forget scandals like this one especially when it involves something they use constantly. Facebook essentially is social media, while Twitter Inc. (NYSE:TWTR) and Snap Inc. (NYSE:SNAP) both offer alternative platforms, neither holds a candle to the FB empire which includes WhatsApp and Instagram. People will be outraged, but they’ll get over it.
Just look at General Motors Inc. (NYSE:GM). Just a few years ago news broke that the company knowingly sold faulty vehicles that have been linked to more than 100 fatalities. Fast forward to the present and two of the firm’s models were in the top ten best-selling cars of 2017.
The Bottom Line on Facebook Stock
If you were ever considering adding Facebook stock to your portfolio, now’s the time to do it. While its true that the next few months could be bumpy for the social media giant, the long-term gains are worth it. Even Knowak, who sees the ad scandal damaging FB user engagement and hurting the firm’s bottom line, is bullish on the stock long-term.
His reduced price target for Facebook stock is $200- suggesting a near 30% upside from where the share price was at the close of business on Wednesday.
As of this writing, Laura Hoy was long VLKPY and FB.
