From the earliest days of Facebook (NASDAQ:FB), the company has been a magnet for controversy and drama, but Facebook stock has been mostly reliable.
The company trailblazed a new-fangled community that impacted many people’s personal lives, but the consequences of any mistakes or miscues were not necessarily great, as the company grew at a feverish pace.
However, as for now, things are much different. FB has amassed incredible power. The platform has 1.59 billion DAUs (Daily Active Users) and 2.41 billion MAUs (Monthly Active Users. There is also $48.60 billion in the bank, with the market cap of Facebook stock at a hefty $508 billion.
Getting to this point has meant engaging in rough competitive tactics. A prime example is the brutal fight against Snap (NYSE:SNAP). For the most part, FB has relentlessly knocked offed features for its Instagram app. All in all, the strategy has worked quite well.
But of course, there are some major risks.
Perhaps the biggest for FB stock is the real threat of governmental backlash. Keep in mind that the EU has been putting pressure on the social network. And as for the U.S., FB has already had to pay a $5 billion fine as well as agree to various restrictions. Then there is the ominous talk of breaking up the company, such as with spinoffs of key assets like Instagram and WhatsApp.
In fact, in audio that TheVerge.com obtained of Mark Zuckerberg, he lashed out against Senator Elizabeth Warren, saying: “But look, at the end of the day, if someone’s going to try to threaten something that existential, you go to the mat and you fight.”
Potential Regulations and Facebook Stock
OK then, in light of all the talk of a breakup and regulatory actions, what will ultimately be the impact on the FB stock price? Could the company be in jeopardy here? Well, making predictions is certainly speculative, but hey, it’s still an important exercise to game out.
At a minimum, there will likely be some declaration of the growth rate that will limit the upside of FB stock. Being under the constant pressure of governmental investigations is draining and expensive.
To get a sense of this, look back to Microsoft (NASDAQ:MSFT) in the late 1990s as the company did suffer from the scrutiny. Interestingly enough, a big part of this was that Bill Gates started to lose focus and get gun shy on taking on the competition. As a result, MSFT started to lose out to upstarts like Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG).
Next, Facebook stock could be even more vulnerable. After all, MSFT had the advantage of a massive enterprise software segment, which generated huge cash flows. FB, on the other hand, is mostly focused on the dicey consumer market that is subject to fads and the whims of users.
Now Zuckerberg has been able to navigate this with acquisitions. Yet this option may no longer be available because of the problems with antitrust laws.
Bottom Line on Facebook Stock
So yes, FB stock does face some tough challenges. But I think the biggest problems will not have an impact until several years in the future. Governments certainly work slowly and are subject to changes in sentiment.
The good news for FB is that the company has yet to become a topic in the upcoming presidential election. There are other issues, like health care and even the prospect of impeachment, that are top-of-mind right now.
In the meantime, the core business for FB looks solid. Let’s face it, advertisers have little choice but to spend huge sums on the platform. It’s one of the few ways to get an enormous scale and leverage with targeting.
“Facebook’s growth story definitely looks intact and the valuation certainly seems reasonable,” said Kevin Kleinman, who is a financial advisor and portfolio manager at Blue Haven Capital. “The internet giant owns four of the most popular social media and communication apps in the world, only two of which are monetized and all four of which are addictive, sticky and resilient to outside pressures.”
Tom Taulli is the author of the book, Artificial Intelligence Basics: A Non-Technical Introduction. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
