In hindsight, the time to snap up Facebook (NASDAQ:FB) stock was mid-March. When it closed at $146.01 on March 16, FB stock was down 35% from its all-time record high close of $223.23 on Jan. 29.
In addition to general market uncertainty, there were concerns the novel coronavirus would strangle Facebook’s ad revenue. Since then, FB has been in recovery mode, and it’s now at the point where it’s posted double-digit growth for 2020.
Does that mean it’s now too late to buy Facebook stock? Not at all.
Stabilizing Ad Revenue Despite Coronavirus Pandemic
Under coronavirus lockdowns, people have been spending more time online than ever. However, there were early signs that the increased traffic would not pay off with additional ad revenue.
Garrett Johnson is an assistant marketing professor at Boston University’s Questrom School of Business. At the start of April, he told The New York Times:
“A lot of advertisers are just pulling back — the tide’s going out. If the economy is not doing well, if firms are bleeding cash as a result of Covid, we’re not going to be seeing too much advertising.”
Days earlier, Facebook warned that the coronavirus was undercutting its ad sales. That warning shaved 1% off FB stock, which was just beginning to recover from the March market sell-off.
However, concern about the coronavirus gutting ad revenue was short-lived. When Facebook reported first-quarter earnings at the end of April, the company had good news for investors:
“After the initial steep decrease in advertising revenue in March, we have seen signs of stability reflected in the first three weeks of April, where advertising revenue has been approximately flat compared to the same period a year ago…”
Taking on Zoom With Messenger Rooms
Another aspect of the coronavirus pandemic offers an opportunity for Facebook. Social distancing and companies with employees working from home have resulted in an explosion in video conferencing.
The early success story on that from was Zoom Video Communications (NASDAQ:ZM). Zoom saw a huge spike in users, although many of those were soon looking for more secure alternatives. With the prospect that video meetings could become far more common in the future, Facebook entered the fray.
On April 24, the company announced big changes to Messenger. The new Messenger Rooms supports secure group video chatting for up to 50 participants with no time limits. It offers work-friendly features including AI-generated backgrounds.
Participants don’t need to have a Facebook account, making it more accessible. Facebook says it plans to roll out Rooms capability to its other apps and services, including WhatsApp, Instagram, and Portal.
The video meeting popularity kicked off by the coronavirus pandemic might just give Facebook the opportunity to edge into use as a business tool, leveraging the popularity of Zoom.
What About Those Antitrust Investigations?
As 2019 wound down, one of the biggest stories around Facebook was its ongoing embroilment in government investigations. At the end of July, the company was hit with a record $5 billion fine from the Federal Trade Commission over privacy practices. In September, the U.S. Department of Justice announced its intention to open an investigation into Facebook.
Worsening the situation, Sen. Elizabeth Warren campaigned for the Democratic presidential nomination on a platform that included breaking up Facebook.
With Warren now out of the race, some of the pressure is off Facebook. With the Justice Department investigation still at the fact-finding stage and the coronavirus disruption effectively putting things on hold, Facebook may yet escape relatively unscathed.
At least until after the election.
The Bottom Line on FB Stock
Investment analysts clearly aren’t worried about antitrust investigations. They see only more growth ahead for Facebook, and growth opportunity for FB stock. The Wall Street Journal is tracking the ratings of 49 analysts. They have FB stock rated as a consensus buy, with a $238.30 average 12-month price target.
With Facebook currently trading at just over $212, that offers a modest 5% upside. However, considering FB’s trajectory over the past five years — up 164% — it’s an investment with solid long-term prospects.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
