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Facebook Stock Is Battered, But At Least It’s Still a Cloud Czar

FB - Facebook Stock Is Battered, But At Least It’s Still a Cloud Czar

Source: Shutterstock

Back in March, I shared my misgivings about Facebook (NASDAQ:FB) and suggested it was in trouble. At the time, FB stock was selling at about $176 per share. Readers may have thought that I was insane. By late July, Facebook was selling for as much as $217 per share.

Then came the reckoning in FB: a disappointing earnings report and negative headlines that have sent FB stock down by one-third, to roughly $143 per share.

At that price, you’re paying less than 22 times earnings for a stock that had $40 billion in revenue during 2017 and already had $39 billion in revenue through the first three quarters of 2018. Despite heavy investments in cloud data centers and software, Facebook brought $15 billion of that 2018 revenue to the net income line.

So, is it time to buy Facebook stock?

The Bear Case Against FB Stock

There is little doubt this year has been an “annus horribilis” for Facebook management.

A New York Times article released Nov. 14 added to the pressure, describing a company more focused on its image than its reality, with chief operating officer Sheryl Sandberg (the nice one) hiring a conservative marketing firm that linked Facebook protesters to George Soros, and pressuring Democratic leaders to back off investigations.

Facebook knew about Russian interference in the 2016 election and covered it up, the expose said. It coddled the peddlers of fake news rather than going after them, and rejected public attacks on its actions from people like Apple (NASDAQ:AAPL) CEO Tim Cook, even when it knew the underlying facts behind those attacks were true.

CEO Zuckerberg’s testimony to Congress in the spring, previously called a triumph, has now been revealed to have been stage-managed and false. One elected Democrat is now calling for regulation, saying FB “cannot be trusted to regulate itself.” Short-term analysts are saying FB stock will fall further, and they may be right.

Employee morale seems to have fallen as hard as Facebook stock .

So why should you pick up this hot mess?

Facebook Cloud Power

Start with the fact that Facebook is no longer Facebook.

Instagram is Facebook. Whatsapp is Facebook. While their founders have gone, sometimes with harsh words, the services continue to grow, even while traffic at the main service is under pressure.

More important is where FB has put its money, on a network of cloud data centers that make it one of the five “Cloud Czars” dominating the leading edge of technology. It is not hyperbole to suggest that Facebook is now more important to global connectivity than AT&T (NYSE:T), with 12 data centers and 15 million square feet under management.

Facebook has used open source techniques to build its data center footprint, sharing its cost-saving innovations through the Open Compute Project, driving down costs.

Maybe Facebook can’t depend on giving away content it gets free and advertising against that content for its growth. But Facebook still has enormous cloud computing capacity, in a world hungry for such capacity. It could go into business against Amazon Web Services tomorrow, and even at its present depressed price, Facebook is worth more than twice as much as Walt Disney (NYSE:DIS) or Comcast (NASDAQ:CMCSA).

The Bottom Line on FB

The Facebook service is in deep, deep trouble, but investors are underestimating the value of the assets Facebook has built in the process of developing its services.

Facebook has yet to see any degradation in traffic at Instagram and Whatsapp, and calls to break up Facebook by separating those services out from the main company are going nowhere in the current political environment.

Let Facebook stock become worth less, but know that it’s far from worthless.

Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in T, AAPL and AMZN.


Article printed from InvestorPlace Media, https://investorplace.com/2018/11/facebook-stock-is-battered-but-at-least-its-still-a-cloud-czar/.

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