Few companies suffered more negative press coverage in 2018 than Facebook (NASDAQ:FB). But the company’s fundamentals are hanging tough. Is FB stock poised to recover some of the ground it lost over the last 12 months? The latest bad news for the Silicon Valley titan is the revelation that Facebook exposed private photos from about 7 million users to apps that weren’t supposed to get them. Those apps were authorized to see a limited set of users’ photos, but a bug allowed them access to lots of other ones.
But with all the controversy swirling around the company, its balance sheet remains strong. While Facebook stock is down more than 30% from an all-time high set earlier this year, it was rising over the past three weeks even as the financial markets have remained turbulent. However, despite this recent strength, the stock still wasn’t able to avoid the pre-holiday dip that most other stocks suffered from.
There is still tremendous demand for the service Facebook is providing. While Twitter (NYSE:TWTR) may get all the attention because of its use by leading politicians and celebrities, Facebook remains the place where ordinary folks go to announce major life changes — an engagement, a new job, a new baby — to their widest circle of friends. The rise of social media may be the most important business story of this decade. About 70% of American adults use social media regularly, up from only 10% 12 years ago.
In addition to the 2.2 billion users of Facebook itself, the company’s subsidiary platforms — Instagram, WhatsApp and Messenger — all boast more than 1 billion users each. A competitor trying to knock FB off its pedestal would face enormous problems. While it is already one of the most important advertising platforms in the world, many analysts believe it could double its advertising revenue over the next five years. That’s because it is not yet monetizing its Messenger and WhatsApp customers to the extent that it could.
FB Stock: Improving the News
The company is also refining its News Feed feature to show people the stories most relevant to them, as it competes with Alphabet’s Google News (NASDAQ:GOOG, NASDAQ:GOOGL). The effort includes global crowd-sourced surveys of tens of thousands of people per day, and keeping track of whether a story engaged users in broader discussions. Facebook’s news feature has been the subject of intense political controversy in the media. Liberals in particular complain that the company’s news algorithm allows sources into the mix that are more like partisan propaganda than objective news reporting.
But if Facebook users are upset with the nature of the news function, it hasn’t shown up in the company’s usage figures. FB stock is now selling at about 20 times forward earnings. For a company that combines huge market share with significant growth prospects, that is a rather low figure. For the long term, investors need to find stocks that have proven their ability to dominate their core markets. Despite all the recent controversies, FB stock still meets that description.
As of this writing, Thomas Scarlett did not hold a position in any of the aforementioned securities.
