Facebook Inc. (NASDAQ:FB), the largest social media company, is no stranger to controversy. The good news for investors is that FB stock, while it has had some hiccups along the way, often appears impervious to the company’s controversial ways, most of which are self-inflicted.
After climbing more than 4.6% last week, Facebook stock is higher by about 38.30% this year, putting it well ahead of the Nasdaq-100 and Dow Jones Internet Composite indexes, two benchmarks in which Facebook stock is a major component.
Not to oversimplify things, but there are dueling points of views on FB stock. On the more-negative side of the ledger, the company’s missteps are usually of a high-profile variety and almost always have some impact on its most valuable commodity: Facebook users.
Facebook stock and investors’ perception of the company and the shares are often tied to CEO Mark Zuckerberg and COO Sheryl Sandberg, both of whom have been on the receiving end of calls to step down, but neither of whom appear to be going anywhere anytime soon. Zuckerberg controls a large majority of Facebook stock’s voting shares so forcing the founder and CEO seen by many as arrogant out of the helm of his own company is not going to be an easy task.
One way to think about Facebook as a company is like this: Facebook stock is killing the broader market, but large shareholders, impotent as they may be in this case, recently supported proposals to fire Zuckerberg. Facebook stock has more than doubled over the past four years. How often do investors hear about a stock performing like that but also wanting the CEO to get sacked?
The Other Side
The other side of the coin is that Facebook stock, as noted above, is a juggernaut. Recently S&P Dow Jones Indices expelled Facebook stock from the S&P 500 ESG index, citing the company’s multiple data privacy scares, including the Cambridge Analytica scandal and the hacking of 50 million user accounts.
That is more of anecdotal example and for now, there are no ESG funds in the U.S. tracking that ESG Index, so it’s of little consequence for Facebook stock to be or not be in that gauge. Additionally, there is plenty of support among sell-side analysts for Facebook stock.
Earlier this month, MoffettNathanson analyst Michael Nathanson boosted his rating on Facebook stock, to “buy” from “neutral,” citing attractive valuations. In fact, the analyst called Facebook the cheapest internet stock, quite the call when considering internet and social media names traditionally trade at rich multiples.
“When comparing across a broader set of metrics among our internet coverage group, Facebook stands out as being the cheapest despite having the strongest projected growth,” wrote Nathanson.
Recently, Deutsche Bank analyst Lloyd Walmsley reiterated a “buy” rating on Facebook stock with a $220 price target. Speaking of price forecasts, Facebook stock closed just over $181 on June 14, but the average analyst target on the name is $221.50.
Bottom Line on Facebook Controversy and Catalysts
Controversy may appear to be ingrained in Facebook’s culture, but optimistically speaking, that is a problem which can be dealt with internally. The solution needs to come from the top down. Investors willing to embrace some of the potential headline risk that may come with Facebook stock could be rewarded because the company is fundamentally sound.
Like some of its mega-cap tech rivals, Facebook has an increasing footprint in the fast-growing cloud computing arena. Moreover, Watch, the company’s video vertical, is catching on in a big way.
“We launched Watch globally less than a year ago, and there are now more than 720 million people monthly and 140 million people daily who spend at least one minute in Watch. On average, daily visitors spend more than 26 minutes in Watch every day,” according to a post on the Facebook blog.
Facebook Watch could be a major driver of ad revenue for the company over the next several years, potentially playing a role in boosting investor returns along the way.
Todd Shriber does not own any of the aforementioned securities.
