FB with Nobias technology: Facebook: Down Double Digits and Offering 26% Upside Potential
Facebook (FB) is a company surrounded by controversy. Whether you’re a bull or a bear, this is undeniable. Due to the rise of weaponized social media schemes, largely targeting elections in the U.S and abroad, Facebook has been under a lot of regulatory scrutiny by lawmakers (once again, in the U.S. and abroad) for its policies regarding free speech. Politicians on both sides of the political aisle in the U.S. have been outspoken against Facebook’s policies and status as a digital publisher. The company’s digital advertising platform has come under scrutiny because of a lack of transparency. And in recent years, Facebook, alongside other members of the “big-tech” cohort in the U.S. have come under antitrust pressure due to the idea that they’ve become too large and powerful for others to compete with.
Most recently, Facebook has faced pushback against a controversial plan to develop an Instagram for kids (remember, the parent company Facebook owns the social media properties, Facebook, Instagram, and Whatsapp, amongst others assets) even though recent reports have arisen which show that internal studies at the company have shown that social media can be harmful to children’s psyche.
Needless to say, it’s not hard to find negative headlines surrounding this brand name; however, throughout all of this noise, the fact remains, Facebook is one of the world’s most profitable companies. It has a balance sheet that just about every member of the S&P 500 is envious of. And, the stock’s underlying fundamentals continue to grow at a rapid pace. So, with that in mind, we wanted to take a look at FB shares, which have pulled back approximately 10.2% during the last month, to see whether or not this is a dip that the community of credible analysts tracked by the Nobias algorithm believes investors should be buying.
Within the big-tech cohort, there has been division recently on privacy practices. Apple (AAPL) is trying to set itself apart from peers by branding itself as a secure and consumer friendly company (with regard to personal data collection on digital device) and recent changes that Apple made to the privacy settings on its iPhones has led to anxiety regarding Facebook’s performance. This has factored into FB’s poor share price performance; however, it appears that the headwinds may not be as dire as some previously feared. Last week Facebook released a blog post which highlighted its Q3 advertising performance. Hassan Maishera, a Nobias 4-star rated analyst, recently covered this news in an article at Yahoo Finance.
Maishera said, “the social media giant admitted that it underreported web conversions on Apple’s iOS by roughly 15% in the third quarter of the year.” Maishera continued, “Graham Mudd, Facebook’s VP of product marketing, stated that they believe that the real world conversions, like sales and app installs, were much higher than what was reported to numerous advertisers.”
Maishera points out that Facebook appears to be aware of the negative consumer sentiment surrounding outsized data collection and is working on ways to enhance digital privacy while still generating strong advertising dollars. Maishera wrote, “These technologies are expected to minimize the amount of personal information Facebook processes while allowing the social media giant to show personalized ads and measure their effectiveness.”
Adam Levy, a Nobias 4-star rated author also recently published an article highlighting Facebook’s privacy practices, saying that Apple’s decision “Could Accelerate Facebook's Social Commerce”. Levy points out that since Facebook is not having difficulty tracking data between different app developers on Apple devices, the company is likely to focus more and more of its energy on internal projects where it can provide advertisers with the best data.
Levy highlights Facebook Shops as a major winner of Apple’s opt-in decision, saying: “Facebook introduced Shops on Facebook and Instagram in May of last year, building on its success with Instagram Checkout and the development of Facebook Pay. The feature allows businesses to sell directly to Facebook users, using a credit card already on file with the social network. The idea is to reduce friction in moving users from product awareness to purchase by keeping users within the app and making it as simple as possible to check out.” He continues, highlighting massive opportunity that Facebook Shops presents to the company, saying, “If Apple's iOS changes usher in broader adoption of social commerce, it could ultimately benefit Facebook -- not because Shops presents a big new source of revenue, but because the advertising opportunity with Shops is even greater than directing users to third-party apps and websites.”
Levy believes that Amazon’s recent success with its digital advertising platform can be a blueprint for Facebook in this area. He notes that Amazon’s “ad business was on a $30 billion annual run rate in the second quarter, and it grew more than 80% year over year.” Therefore, he says, “If Facebook could come anywhere near emulating that success, it could really move the needle for the company, despite bringing in over $100 billion over the past 12 months.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Anthony Di Pizio, a Nobias 4-star rated analyst also recently penned a bullish article on Facebook, saying that it is one of 2 companies that he believes investors should “Buy Hand Over Fist If the Market Crashes”. Di Pizio began his piece saying, “Facebook needs little introduction: Nearly half the planet uses its platforms each month. But the company's $1 trillion market valuation highlights just how powerful its business is.” He says that Facebook is the world’s largest social media company; however, that’s not why the company’s long-term future is so exciting.
Di Pizio wrote that Facebook is “now turning its ambitions toward developing a brand new medium it calls the metaverse, a virtual and augmented reality experience that could dwarf everything it has done so far.” At its early stages, the metaverse is an abstract concept. Di Pizio explains how Facebook could benefit from its development, saying, “According to CEO Mark Zuckerberg, the metaverse could become a digital society where humans can do in virtual spaces even more of the activities we do in everyday life. It could even sustain its own economy, and driving that economy could be an enormous opportunity for Facebook.” But, his bullish thesis for Facebook doesn’t just revolve around speculative growth. Actually, Di Pizio points out that Facebook offers an attractive value proposition, especially on a relative basis to its peers. He said, “Facebook is already growing quickly without a metaverse business, and it's a profit-generating machine. The stock trades at a reasonable price-to-earnings ratio of 25.7, while the tech-focused Nasdaq 100 index (of which Facebook is a component) carries a loftier P/E of 36.”
The bullish lean of these recently published articles mirrors the overall opinion of the credible author community tracked by Nobias. Right now, 90% of these credible authors express “Bullish” opinions on Facebook stock. Right now, the average price target amongst the Wall Street analysts that Nobias rates as either 4 or 5 stars is $433.18. Today, Facebook trades for $343.01. This means that the average price target above represents upside potential of approximately 26.3%.
Disclosure: Of the stocks discussed in this article, Nicholas Ward is long AAPL and FB. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.