In theory, Facebook (NASDAQ:FB) should be the epitome of an anti-coronavirus stock. With the exception of Instagram, users of which typically need to leave their homes to create interesting stories and snap captivating pictures, “core” Facebook can be consumed from the comfort of one’s home. And since there’s no physical contact involved with “friending” folks and liking posts, no one can contract potentially fatal respiratory illnesses by using social media.
Yet FB stock is down 28% in the last month. Clearly, FB stock has been more vulnerable to the virus than initially anticipated. The reasoning behind the stock’s recent weakness is sound. Facebook’s rival, Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), controls 36% of the online advertising market and Facebook, with a 20% share of internet advertising, is really the only other player of significant consequence in the space. Advertising, whether it’s on traditional TV or online, is an economically sensitive industry.
Due to the coronavirus outbreak, the recession fears that began during the 2019 trade spat with China are growing ever stronger. And during recessions, ad buyers trim their budgets.
Facebook is already feeling some pain. As Laura Martin, an analyst at Needham, pointed out during her Tuesday interview with CNBC, the coronavirus delayed the release of the newest James Bond film, delaying $50 million of ad revenue for Facebook.
The Concerns About Facebook Are Overblown
Facebook became a public company in May 2012, meaning the stock hasn’t endured a true recession. Investors should consider a couple of related points. First, the coronavirus is widely viewed as the primary reason that a recession could occur, and if and when the virus is contained, concerns about the economy will likely ebb.
Second, Facebook is incredibly valuable to its users, and a recession is unlikely to chase users away. If anything, an economic downturn could bring them to the social media platform more frequently. A 2018 study by Sean B. Cash, an economist and the Bergstrom Foundation Professor at the Friedman School of Nutrition Science and Policy at Tufts University indicates that it takes a decent amount of money to drag folks away from Facebook.
To get someone off of Facebook for a year, it would take $1,000, according to the Tufts study. Some analysts agree with the thesis that Alphabet and Facebook could hold up relatively well during a period of economic contraction.
There are trends “suggesting Alphabet and Facebook would continue to take share through a downturn, while TV could be impacted in the same way newspapers were 12 years ago,” said Atlantic Equities analyst James Cordwell in a recent note to clients. “Given the still significant uncertainty as to whether we will see a recession, we continue to view both stocks as attractive, given ~10% downside should a recession emerge and 25%+ upside if it doesn’t.”
The Bottom Line on FB Stock
The market’s pullback is punishing growth stocks, including Facebook, but the company has levers to pull. Those include almost $55 billion in cash, or more than 10% of its current market value.
Amid the recent weakness of the stock, Facebook (and investors) should be buying its shares. In January, the company added $10 billion to a previously existing $24 billion buyback scheme. But Facebook’s CEO, Mark Zuckerberg, and its COO, Sheryl Sandberg, could further support the stock by authorizing more repurchases. The company has enough cash to do just that.
But even if that doesn’t happen, there are catalysts, including the resilience of its ad business (assuming chatter about a recession wanes) and e-commerce initiatives that could propel the stock higher when fears about the coronavirus ebb.
Todd Shriber has been an InvestorPlace contributor since 2014. As of this writing, he did not hold a position in any of the aforementioned securities.