Facebook Remains a Good Investment Despite the Drama

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It’s a tough time to be an investor in Facebook (NASDAQ:FB) stock.

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The latest bad news to hit the Menlo Park, California-based company was that Walt Disney (NYSE:DIS) is pulling its advertisements for the Disney Plus streaming service over concerns that Facebook has become rife with hate speech, political disinformation and is used to spread fake news.

Disney joins more than 1,000 other companies that are supporting the #StopHateForProfit campaign and suspending their advertising on Facebook. Coca-Cola (NYSE:KO), Microsoft (NASDAQ:MSFT) and Starbucks (NASDAQ:SBUX) are other prominent companies boycotting Facebook. It’s all an effort to get the company to do a better job of policing its social media platform.

What makes Disney’s boycott particularly painful is the fact that the Mouse House was the biggest spender on advertising with Facebook in the first half of 2020. Disney shelled out $210 million on Facebook ads for Disney Plus in the U.S. alone, according  to a report in the Wall Street Journal.

Meanwhile, a meme of Facebook Chief Executive Officer Mark Zuckerberg surfing in Hawaii with his face completely coasted in sunscreen was going viral. The meme underscored that the company and its famous founder can’t catch a break these days.

All the drama has sent Facebook shares on a roller coaster ride over the past month. The price of FB stock has plunged from $242.24 a share to $216.08 before recovering to $245.42 since the end of June. The turmoil has Wall Street asking if Facebook can weather the current storm or if this is the beginning of the end for the social media powerhouse?

An Elephant in the Room

Of course, the elephant in the room with Facebook and FB stock is the upcoming presidential election. Facebook  was widely criticized during and after the 2016 presidential election. Critics said it was being used to spread disinformation and propaganda to voters, many of whom couldn’t distinguish fact from fiction on the platform. Russia was accused of using Facebook to support Donald Trump and denigrate his opponent Hillary Clinton through a series of advertisements and posts on Facebook.

According to an investigation by The New York Times, Russian agents placed inflammatory posts on Facebook that reached 126 million users during the 2016 presidential campaign. While heavily criticized over the Russian meddling, Facebook has so far refused to halt political advertisements on its site. And, critics say, the company has not done enough to stop the spread of misinformation.

Four months out from this year’s presidential election, the concern is that Facebook will once again be used to spread discord and animosity among voters.

Seeking Reassurance

Zuckerberg has found himself in the hot seat from the media and politicians who are demanding that Facebook do more to police the content on its platform. Last October, Zuckerberg appeared before Congress to answer questions about abuse on social media and the ways in which Facebook handles user information. His appearance followed the revelation that political consulting firm Cambridge Analytica harvested data of more than 85 million Facebook users.

Over 10 hours, Zuckerberg faced more than 600 questions from lawmakers. By most accounts, he did not do enough to reassure political leaders and the public that Facebook will take the steps needed to better safeguard user information and limit the spread of false advertisements and posts. This, in part, led to the advertising boycott that now has Facebook facing an existential crisis of sorts.

Earlier this month, Zuckerberg and his top lieutenant, Sheryl Sandberg, met with leading civil rights groups to discuss how the social network treats hate speech. By all accounts the meeting was a disaster, furthering the number of companies pulling their ads from Facebook.

Throughout the onslaught of public criticism, Zuckerberg has defended himself and his company by saying repeatedly that Facebook must “continue to stand for free expression.”

However, it was reported on July 10 that Facebook is discussing internally whether to ban political advertising on its platform in the days leading up to the U.S. presidential election in November. This is a sign that that the advertising boycott might be causing Zuckerberg and company to reconsider their approach to social media.

Still an Online Behemoth

In spite of all the criticism and backlash, Facebook remains an online behemoth when it comes to users and advertising. Today, 70 percent of American adults use Facebook and the company counts 2.50 billion active users worldwide each month. Stories posted on Facebook get more than 500 million views everyday and 5 billion comments are left on Facebook each month.

Anyway you look at it, Facebook remains an internet juggernaut. This accounts for the fact that, in 2019, Facebook’s revenue amounted to $70.7 billion, up from $55.8 billion in the previous fiscal year. The majority of that revenue came from digital advertising.

And while 1,000 companies have joined the ad boycott against Facebook, the platform has more than 7 million regular advertisers.

And it’s not just Facebook any longer. The company also owns, and draws revenue from, Instagram, WhatsApp and virtual reality company Oculus VR – among others.

And Facebook is constantly looking at ways to challenge and dominate its competitors. Facebook is preparing a competitor to the popular site TikTok, called Instagram Reels that will enable people to create and share 15-second video clips set to music.

The combination of market dominance and innovation are partly why FB stock has rebounded in recent weeks and now hovers near its 52-week high of $250.15 per share.

FB Stock: Buy or Shun?

So what’s an investor to do when it comes to FB stock? According to a poll of 47 investment analysts, investors should “buy” FB stock. There are only three “sell” ratings on the stock.

The median price target for FB stock is $258 per share, with a high estimate of $300 and a low estimate of $120.

Analysts seem to agree that, despite the public headwinds, Facebook remains a solid company and good investment. Its business is likely to continue thriving despite the current boycott.

While politically conscious consumers may continue to shun Facebook, investors focused purely on business and the making of money should have no qualms about investing in FB stock. The company remains an online advertising machine.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia. As of this writing, Joel Baglole held shares of DIS, KO and MSFT.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.

 


Article printed from InvestorPlace Media, https://investorplace.com/2020/07/facebook-remains-a-good-investment-despite-the-drama/.

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