The world’s most viral app, TikTok, faces potential bans across the world, and that’s great news for Facebook (NASDAQ:FB) stock.
![A person using the Facebook app on a smartphone](https://investorplace.com/wp-content/plugins/lazy-load/images/1x1.trans.gif)
The Chinese social media app has quickly become a favorite among young consumers around the globe amid the coronavirus pandemic due to its ability to deliver quick entertainment through music-focused, short-form user videos. As the app has surged in popularity though, it has also come under increasing scrutiny for its questionable handling of user data.
Those concerns — coupled with escalating geopolitical tensions — have resulted in TikTok being banned in India, pulling out of the Hong Kong market and the U.S. weighing a national ban.
That’s all great news for Facebook, who has a unique opportunity to turn its new feature — Instagram Reels — into a TikTok replacement for markets where the app gets banned.
It’s also great news for FB stock, which remains positioned to rally to $275 in 2020.
TikTok’s Loss Is Instagram Reels’ Opportunity
Current and future TikTok bans across the globe represent a huge opportunity for Instagram Reels to significantly boost the Facebook ecosystem’s user, engagement and revenue numbers.
The logic is simple. TikTok has quickly become the most popular app in the world among younger audiences. But the app is already banned in India, and will possibly be banned in the U.S. and other countries over the next few months. All that young audience demand that is on TikTok today, will still need an outlet once the app is banned. Where will they go next?
Some say Snap (NYSE:SNAP). I can see that. But Snap is more dedicated to one-on-one communication, whereas TikTok is more broadly akin to a mobile TV experience. Plus, while Snap has a huge audience domestically, its reach in international markets is scant.
The better answer to me is Instagram, thanks to the platform’s new feature, Reels.
Reels is essentially just a copycat TikTok. It’s a feature which allows users to upload artistically creative, 15-second videos to the backdrop of music loops — and to anyone who knows the TikTok app, that’s basically all the app is.
Investors might recall how Instagram responded to Snapchat’s increasing market share earlier in the decade: they added face filters and the Stories feature, clearly mirroring features on their competitor’s app. And investors might also recall how Snap floundered for years following its IPO, before things began looking up this year. And Snap was never banned from a market of 1 billion plus people.
Reels is live in Brazil, France and Germany. It’s now rolling out in India, where TikTok just got banned. It will eventually debut everywhere Instagram is, which is quite literally everywhere.
To that end, Instagram Reels should significantly increase the number of users in Facebook’s ecosystem over the next few quarters, the amount of time each one of those users spends on the platform and the amount of ad revenue flowing through the ecosystem.
Facebook Stock to $275
In the big picture, TikTok bans and Reels growth simply give Facebook stock more firepower to hit the $275 mark in 2020.
Facebook should continue to grow its Facebook and Instagram advertising businesses. At the same time, the company will flesh out its WhatsApp and Messenger ad businesses. Also at the same time, Facebook will continue to push forward on its e-commerce initiatives.
In sum, Facebook has enough firepower to drive steady, 20%+ revenue growth over the next few years. Gross margins remain high, because all sources of revenue are inherently high-margin. Opex rates should fall as big data security investments phase out. Net profit margins should expand. Profits should rise by 20%+, too.
Net net, my base case model on Facebook continues to call for $20 in earnings per share by 2025. Based on a 20-times forward earnings multiple and a 10% annual discount rate, that equates to a 2020 price target for FB stock of $275.
Bottom Line on FB Stock
Facebook stock is a long-term winner. TikTok bans present a significant near-term growth catalyst for this long-term winner. As such, now is a good time to double down on FB stock. Shares have visible runway to $275 by the end of the year.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been recognized as one of the best stock pickers in the world by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he was long FB and SNAP.