Humpday never felt so bad, at least in recent memory. The Dow Jones Industrial Average lost nearly 832 points, sending market professionals scrambling for answers. But for me, I anxiously watched Facebook (NASDAQ:FB) tick down. When the carnage finally ended, the Facebook stock price lost more than 4%.
To add some context to this figure, it’s one of the worst single-day performances in the year-to-date. Only six other sessions were worse than Wednesday’s slip-up. Discounting the disastrous 19% hemorrhaging in late July following the company’s second-quarter earnings result, the other losses occurred within the first three months of 2018.
But that’s not necessarily the reason I’m disappointed with Facebook stock. While many folks in mainstream circles reacted harshly to the company’s role in the Cambridge Analytica controversy, I held firm. I believed that the volatility in the markets offered a compelling discounted opportunity.
Nothing has changed in my view. However, I admit that the steadily eroding FB stock price makes my argument more difficult to justify.
But having dissected all that’s happened in this terrible hump day, I’m still bullish on Facebook stock. Here are five reasons why:
FB Stock Has Simply Fared Better
I’m going to start off with the low-hanging fruit. But don’t let that fool you as it’s no small matter: Facebook stock has simply fared better than the competition during this broader selloff.
But it’s not just about the pure stats. Facebook stock has an easily explainable reason why it has fallen; namely, investors have grown accustomed to outstanding quarterly results, and they freaked out when management didn’t quite deliver. This is a relatively straightforward fix.
Yet, Twitter appears to have trouble convincing Wall Street that its much-awaited turnaround has legs. In the first half of the year, TWTR gained over 78%. The second half? A staggering 40% loss.
Don’t get me started with Snap. The youth-centric firm was already treading in dangerous territory throughout most of this year. But since August, SNAP’s technical chart appears like a company about to implode, not dissimilar to Sears (NASDAQ:SHLD).
The FB stock price warrants some concerns, yes, but it isn’t Sears (NASDAQ:SHLD).
Facebook Appeals to Everyone
One of the reasons why I’ve never really liked SNAP is that the underlying company is too focused on youth. While it’s great to appeal to a younger demographic, it also limits you if that’s all you’re getting.
Snapchat’s user popularity falls off a cliff after you move away from its 18-to-24-year-old core demo. But Facebook enjoys a broader demo distribution. Yes, FB caters toward youth, as does any other social media platform. The main difference, though, is that the company appeals to far older demos, like baby boomers.
I’m not the only person noticing this trend. Kathryn Jezer-Morton of TheOutline.com mentioned that Facebook is the only social media platform that isn’t dominated by millennials. She views this dynamic as a double-edged sword largely because of generational differences.
But from an investment point-of-view, this wide appeal represents a strong marketing campaign for FB stock. If Facebook can appeal to such disparate consumer groups, synergistic opportunities are limitless. After all, why would advertisers choose any other platform when they know they can hit almost everyone with Facebook?
The Competition Are Dreamers, While Facebook Is a Doer
When I listen to other social media companies longer-term strategies, I hear many “wants.” Twitter wants to prove that its recent profitability surge is no fluke. Snap wants naysayers to know that it’s refocusing efforts for 2019, with a key target being international expansion. These are what you might call “dreamer stocks.”
Their respective leadership teams all have ambitious goals for next year, and they want prospective shareholders to buy in. But do you know which company isn’t dreaming, but doing? That’s right, Facebook Inc.
You want to talk about profitability? When was the last time the company failed to deliver in the black? And if you want to shift the discussion to international opportunities, Facebook has over two-billion monthly users. With Earth clocking in at 7.65 billion residents, Facebook covers over 29% of the planet. That stat alone should boost the FB stock price over the long run.
This is also the reason why the company is a strong contrarian candidate. Its influence has reached an almost-impossible level, and yet FB continues to grow. Therefore, you can’t rationally hate Facebook stock unless it somehow doesn’t meet your expectations.
Facebook Stock Enjoys a Financial Moat
Following the hump-day disaster, several intrepid investors will no doubt seek discounted opportunities. They should really consider Facebook stock, and not just for the above reasons.
Compared to its competition, and to everyone else, the company enjoys a financial moat. While very few publicly traded assets escaped the midweek massacre unscathed, in the end, Facebook will be just fine.
FB levers so many advantages, it’s difficult to keep track of them all. For me, what stands out is the growth curve. During the past four years, Facebook averaged over 43% annual sales growth. In the recent Q2, it grew revenue nearly 42% year-over-year. And that was a “bad” quarter; imagine what they can do in a good one!
Another standout component is its balance sheet. The company is sitting on over $42 billion in cash, and it has zero debt. That gives management so many options to move forward. More importantly for this juncture, the healthy cash account allows FB stock to weather many serious storms.
Facebook Is in Good Company
Typically, the sexiest investments are the ones that few know about. But in this case, sexy takes a back seat to protection. With the markets potentially on the verge of a sharp, sustained correction, I want to be where other people are. Based on covering analysts’ opinions, the majority still believe in Facebook stock.
Based on the last second-quarter performance and the subsequent collapse in the FB stock price, you’d expect analysts to run for cover. But the number of bullish analysts has hardly changed since July. What did change noticeably are the fence-sitters, who largely vacated the arena.
Plus, you have to look at the competition. Twitter features overwhelmingly ambiguous coverage, with most analysts ranking shares as a hold. The same goes for Snapchat stock.
Again, it’s not the most exciting strategy, but I think there’s safety in numbers. Once this volatility passes, you’re going to be very happy that you picked Facebook stock.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.