Much unlike calendar 2018, calendar 2019 has been a really good year for shares of global social media giant Facebook (NASDAQ:FB). Year-to-date, FB stock is up more than 40%. For what it’s worth, FB stock fell 25% in 2018.
Most signs indicate that calendar 2018 was the anomaly, and that FB stock will sustain this year’s strength into the foreseeable future. Specifically, there are three big reasons Facebook stock looks good here and now.
First, the fundamentals suggest that Facebook stock has upside to levels far above $200 before 2019 is out, implying big upside potential over the next three months. Second, the optics suggest that investors will have a big appetite for FB stock over the next 12 months, and that big appetite should push Facebook shares higher for the foreseeable future. Third, the technicals look really good here, and suggest that Facebook stock is due for a big end-of-year rally.
Net net, FB stock looks compelling here and now. Here’s a deeper look.
Fundamentals Suggest Upside to Above $200
The primary and most important reason to buy FB stock here and now is that the fundamentals are strong and improving, and pave the path for the stock to soar — and stay — above $200 before the year is out.
Along with a roster that includes Instagram, WhatsApp, and Messenger, Facebook owns the world’s most popular digital properties. More than 2.7 billion people around the world use at least one of those apps on a monthly basis. So long as Facebook keeps those 2.7 billion users in its ecosystem, ad dollars from around the globe will continue to flow into the Facebook ecosystem. Indeed, Facebook has steadily increased its share of the digital ad market from 9% in 2014, to nearly 20% last year, through better-than-peer advertising solutions and wider reach.
This share expansion will persist, mostly because Facebook has a ton of untapped real estate; Messenger and WhatsApp largely don’t have ads, while Facebook has plenty of room to incorporate ads into Stories across all of its platforms. Thus, by 2025 when the digital ad market will probably measure around $650 billion, Facebook will likely own around 25% of that market — translating into over $160 billion in revenue in 2025 (~16% CAGR from 2018).
At the same time, margins are finally starting to stabilize after getting chopped down in 2018 by big data security investments. Those big investments will phase out, and operating margins will start to crawl higher next year.
Net net, by 2025, I see Facebook as a $160 billion-plus revenue company with 40% operating margins. Those are big numbers. They should generate around $19 in 2025 EPS. Based on a growth stock average 20x forward multiple, that implies a 2024 price target for FB stock of $380. Discounted back by 10% per year, that equates to a 2019 price target north of $230, 18% upside from current prices.
Optics Support Strong Investor Demand
The second big reason to buy FB stock here and now is that the optics will improve into the end of the year, supporting healthy investor appetite for shares of Facebook for the foreseeable future.
Ever since the Cambridge Analytica scandal broke, Facebook has been plagued with consistently negative headlines ranging from data security issues, to big-tech break-up talk, to adverse legislation. Investors have grown somewhat numb to these headlines, because none of them have have had a sustainable impact on the operating fundamentals. That’s why — despite those headlines sticking around in 2019 — FB stock is is up more than 40% year-to-date.
As we head into the last few months of 2019, these negative headlines will stick around. But, there will also be a surge of positive headlines which should boost investor sentiment.
Most of those positive headlines will come from the e-commerce space. Specifically, Facebook is in the early stages of plunging into this world, and this will be the first holiday shopping season for many of Facebook’s e-commerce initiatives, like Instagram Shopping. I suspect a lot of younger consumers will spend big this holiday season through Instagram. That tailwind will show up in the numbers, and will get investors bullish about Facebook’s long-term potential in the shopping and services world.
As investors grow increasingly bullish regarding Facebook’s long-term e-commerce growth prospects, they will gobble up FB stock, and shares will climb above $200.
Technicals Imply Big End-of-Year Rally
The third big reason to buy FB stock here and now is that the technicals look good, and imply that Facebook stock is setting up for a big end-of-year rally. 
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After a rough 2018, Facebook stock put in a bottom on Christmas Eve 2018. Ever since, it’s been up, up, and away for FB stock. During this up, up and away phase, Facebook stock has formed a strong, multi-quarter support line that has tested and held two times before. Each time it did so, the stock’s relative strength index was tumbling towards oversold territory. Further, after each successful test-and-hold of this support line, FB stock reversed course and rallied over the subsequent several months.
Facebook stock just tested and held that support line for a third time. As such, history suggests that FB stock is in the first inning of another impressive rebound rally towards levels above $200 by the end of the year.
Bottom Line on Facebook Stock
Facebook stock is up big year-to-date. The fundamentals, optics, and technicals all imply that the year-to-date strength in FB stock, will persist into the end of the year. As such, buying FB stock here and now as it is bouncing back from a mini sell-off seems like the smart move.
As of this writing, Luke Lango was long FB.
