Up more than 28% year-to-date, Facebook (NASDAQ:FB) deserves some credit. Facebook stock has suffered from self-inflicted controversy this year and, more recently, it appears as though its Libra cryptocurrency is ill-timed or ill-fated.
In recent days, a slew of well-known Libra participants, including MasterCard (NYSE:MA), PayPal (NASDAQ:PYPL) and Visa (NYSE:V), have abandoned the Facebook-led project. Still, Facebook has been resilient in the face of those challenging headlines.
As I noted about three months ago when I last visited Facebook stock in this space, the company, by its own doing, is viewed by some as arrogant if not somewhat reckless, prone to public relations gaffes and lacks for trust among the public.
The latter issue is one of the sticking points when it comes to Libra. It’s as simple as some folks not viewing Facebook as a trustworthy company and as a result of that opinion, they don’t want the social media company having an impact on any monetary system.
What’s interesting is that, as noted above, investors haven’t punished Facebook stock for the company’s various missteps. That despite some data indicating that Facebook is out of favor with younger investors, a constituency it would be reasonable to assume would be fawning for the shares.
A recent survey of millennial investors by the Markets Insider unit of Business Insider indicates that of the five FAANG stocks, the only that’s more out of favor with millennial investors than Facebook is Netflix (NASDAQ:NFLX).
Fundamentals Focus
Despite all the controversy, Facebook is a fundamentally sound company. For example, in the fiercely competitive, highly lucrative online advertising market, Facebook commands 22% of that market, a percentage surpassed only by Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) at 37%.
As Morningstar wrote in a recent research note:
“Facebook is the largest social network in the world, with more than 2 billion monthly active users…The growth in users and user engagement, along with the valuable data that they generate, makes Facebook attractive to advertisers in the short and long term. The combination of these valuable assets and expected continuing growth in online advertising bode well for Facebook, as the firm generates strong top-line growth and remains cash flow positive and profitable.”
As one might surmise, user engagement is critical to success in the social media space and while it’s not hard to find folks talking about ditching social media, it’s fair to say Facebook has not been hampered by such chatter.
“It will come as no surprise that the average Facebook user logs onto Facebook every day, (and most admit to more than once a day use),” according to a Fractl study on Facebook usage. “The average Facebook user also shares content at least once a week with their network.”
That study revealed that 56% of Facebook users access the platform more than once a day while another 28% are on there at least once per day.
Bottom Line on Facebook Stock
Trading at just 18.66x forward earnings, Facebook may not appear to be a growth stock in the truest sense of the term, but earnings and revenue growth suggest otherwise, relevant points ahead of the company’s next earnings update on Oct. 30.
While revenue growth is slowing, Facebook’s third-quarter turnover is expected to rise 26.20% from the comparable year-earlier period and 2020 sales are forecast to rise 22%. A 22% increase in sales is still impressive given Facebook’s market capitalization and where the company is at in its maturation process, indicating that any upside to that estimate could prove potent for Facebook stock.
Adding to the case for Facebook stock heading into 2020 is that earnings per share growth this year is expected to be muted due to spending initiatives around expansion and security, but as those costs decrease next year, earnings could resume growing at a more prodigious pace.
Todd Shriber does not own any of the aforementioned securities.
