Legal Battles Shouldn’t Deter Facebook Investors

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Social-media company Facebook (NASDAQ:FB) has seen its fair share of controversy during the past few years. It’s been a challenge for investors of Facebook stock to stay the course as the government has scrutinized the company on multiple occasions.

someone using the Facebook (FB) app on their phone in front of a laptop that also has the Facebook webpage on it

Source: Chinnapong / Shutterstock.com

Many of us might recall the image of CEO Mark Zuckerberg testifying before the U.S. Congress in 2018. At that time, the CEO was grilled about consulting firm Cambridge Analytica harvesting the data of around 87 million Facebook users.

In 2019, Zuckerberg was called back to testify before Congress to defend his proposed Libra blockchain-based project. Representative Maxine Waters hit the Facebook CEO hard, declaring, “you have opened up a serious discussion about whether Facebook should be broken up.”

Yet, through all of the scandals and price dips, Facebook stock still marched relentlessly higher. And now, Facebook is seemingly in hot water again. So is it time for investors to bail?

A Closer Look at Facebook Stock

Some folks might say that Facebook stock is among the biggest winners during the novel coronavirus pandemic. They have a good point as the share price rose significantly in 2020.

On the other hand, there were times of turmoil along the way. In March, Facebook stock plunged from the $200 area to a 52-week low of $137.10.

That correction was similar to the deep dip that took place in the second half of 2018. As it turned out, both of those corrections were prime buying opportunities.

Impressively, Facebook stock ended 2020 near the $270 level. Thus, we can conclude that the stock, much like the company, tends to show resiliency during times of trouble.

Facing a Possible Breakup

Breakups are rarely fun, and when a corporate giant’s business model is on the line, they can be downright scary.

On Dec. 9, the Federal Trade Commission (FTC) and a group of state attorneys general separately filed antitrust cases against Facebook. These cases alleged that Facebook’s acquisitions of social media platforms Instagram and WhatsApp were anticompetitive and/or monopolistic.

Facebook’s defense, to put it simply, is that the FTC had already approved the Instagram and WhatsApp acquisitions. At the time, the commission evidently didn’t see the takeovers as threats to Facebook’s competition.

Still, it appears that the FTC and state attorneys general might be attempting to break Facebook up. So, the billion-dollar question remains: Does this have to potential to drag FB stock down?

Watch for Lower Prices

I’d say that InvestorPlace contributor Larry Sullivan really hit the nail on the head with his response to this apparent crisis. Sullivan wrote:

“Anti-trust litigation is complex and the cases usually are lengthy. The owners of Facebook stock should prepare for a long wait for the outcome. … In the short-run, though, investors who like having social-media companies in their portfolio have an opportunity to buy Facebook stock while it’s under pressure.”

I couldn’t have said it better myself. There’s an old saying that you can’t fight the government. Zuckerberg looks like he’ll try, but it’s going to be an uphill battle.

But what’s the worst that could happen? Facebook might have to spin off Instagram and WhatsApp. Also, the company will have to spend money to fight the legal cases.

It takes a real stretch of the imagination to conclude that Facebook is facing an existential threat here. The company was immensely profitable before it acquired Instagram and WhatsApp.

Besides, Facebook won’t have to give away Instagram and WhatsApp for free. The company would sell those two platforms for a considerable sum of money, if it has to sell them at all.

The Bottom Line

History shows that when the price of Facebook stock drops, it tends to recover at some point.

Regulatory battles could cause Facebook stock to dip. The company itself will certainly survive, and any correction in the stock price is a chance to accumulate the shares.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.

David Moadel has provided compelling content — and crossed the occasional line — on behalf of Crush the Street, Market Realist, TalkMarketsFinom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. 

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.


Article printed from InvestorPlace Media, https://investorplace.com/2021/01/legal-battles-shouldnt-deter-facebook-stock-investors/.

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