Facebook (NASDAQ:FB) is due to report earnings after the close of trading Jan. 30 and expectations are high.
The consensus is for $2.19 per share of earnings on revenue of $16.4 billion. The “earnings whisper” for FB stock that analysts are giving their best clients is to expect $2.26 of earnings.
The high expectations have moved the FB stock price up roughly 10%, $15 per share, so far in 2019. But for a company with $41 billion in cash on its books in September, with absolutely no debt (but $7 billion in liabilities), that regularly takes in roughly 33 cents in every dollar to the net income line, it looks dirt cheap.
FB Stock and Facebook’s Reputation
What’s wrong with this picture?
Facebook’s reputation is what’s wrong. A few years ago, FB was considered as wholesome as organic quinoa. Now it’s seen more like cigarettes, an addiction that “good people” rid themselves of.
Some of the Facebook quitters went to Instagram, which is owned by Facebook. Facebook’s plan to combine the two, along with Whatsapp, may cause them to rethink that.
The value of Facebook stock is down by almost one-third from its July 2018 high of $217.50 per share, triple the loss of the average Nasdaq stock. CEO Mark Zuckerberg, once the fourth-richest person in the world according to Forbes, is now just the eighth richest.
Zuckerberg has even turned early Facebook stock investors and advisors like Roger McNamee into foes. McNamee’s new book, Zucked, states that “A dystopian technology future overran our lives before we were ready,” and calls Facebook that dystopia.
Facebook is being blamed for Donald Trump, for murders and for suicides … and for 13% of our lost productivity.
In the latest FB scandal, the company stands accused of paying teenagers to install Virtual Private Network software that spies on them. The company denied the spying charge but has pulled the app.
Facebook has also stopped letting independent reviewers see its political ads, claiming security concerns. This raises fears the company may again let its service be used to swing elections worldwide.
Regulation Becomes Protection
Part of Facebook’s response to these scandals is to soften its opposition to regulation, with its head of public relations now saying the company recognizes the value of regulation echoing the call of French President Emmanuel Macron to regulate the content of the entire internet. While regulation would seem to be a retreat for the company, it could also protect it from competition, since only scaled companies like FB could meet the requirements of regulators.
Facebook has also tried to make amends with a $100 million/year fund for journalism, aimed at helping small publishers build subscription revenue. This came just as Verizon (NYSE:VZ) and Buzzfeed, which built huge “free” news platforms dependent on Facebook ads and traffic, announced massive layoffs.
The Bottom Line on Facebook Stock
Facebook knows that in a free online world, the West Coast Law of code is always able to beat the East Coast Law of regulation. The only real hope of regulators, then, is to centralize the resource among a small number of platforms whose code they can control.
The difference between this and the Great China Firewall escapes me. Regulating internet content means Facebook is being offered the power to govern speech across the planet, guaranteeing its monopoly position.
If that’s what is coming, FB stock is a screaming buy here.
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 did not hold a position in any of the aforementioned securities.
