Another Public Relations Disaster
The recent internal allegation against Facebook (FB) is not the company’s first public relations debacle, nor will it be the last. Facebook has a long history of public relations fiascos with Cambridge Analytica, widespread advertising boycott, various data breaches, and the most recent issues exposing internal memos that allege the company put profits before safety on its platforms. The stock has been battered and bruised, falling from $384 to $325 after these bombshell allegations and testimony on capital hill. The stock is now down 15% from its 52-week high heading into earnings. This double-digit decline places Facebook in inexpensive valuation territory relative to its technology peers, one of the cheapest high-growth stocks. Let’s not be remiss here and acknowledge the fact that these public relations issues can linger for long periods, and the regulatory implications may be significant. However, Facebook’s valuation is very appealing at this juncture.
Social Media Goliath
Facebook continues to demonstrate its ever-expanding and massive moat in the social media space. Facebook’s core social media platform, in combination with its other properties such as Instagram and WhatsApp, continues to grow while expanding margins and unlocking revenue verticals. Despite being faced with several public relations challenges over the past couple of years (i.e., Cambridge Analytica, coordinated boycotts, government inquiries into privacy, jumbled earnings calls, anti-competitive testimonies, and the recent internal release of sensitive information suggesting profits supersede safety), Facebook has triumphed to all-times after each event. Facebook had to contend with scaled back advertising spending amid the COVID-19 pandemic in conjunction with the public relations issues. Facebook continues to grow across all business segments, with its user base continuing to expand slowly. Facebook’s moat is undeniable, and any meaningful sell-off like the recent public relations-induced weakness could provide an entry point for the long-term investor. The stock is off 15% from its all-time highs, and the stock is inexpensive relative to its technology cohort.
Advertising Boycotts Failed
Facebook faced a very public onslaught of companies joining an advertising boycott across its social media platforms. However, its latest earnings reports suggest that this effort may have been largely symbolic and effectively inconsequential to its revenue and growth numbers. The advertising boycott had grown to roughly a thousand groups and multinational companies. This presented a unique challenge in which the company remediated and diverted more spending to compliance/security aspects which had already swelled post-Cambridge Analytica, and other platform vulnerabilities were exposed. The magnitude of this boycott seems to have been an inconsequential influence on the stock price. This public relations challenge was managed and posed minimal risk to the company’s valuation moving forward. The same will likely hold true for the most recent public relations incident.
Valuations and Inexpensive Stock
Facebook has over 3.2 billion monthly users across its platforms (Instagram, Messenger, and WhatsApp) that the company is actively engaging to expand margins and create additional revenue verticals. The company is inexpensive from a valuation standpoint, especially after the 15% sell-off from all-time highs. Facebook has a P/E ratio of 24 and a PEG ratio of 0.84 compared to Amazon (AMZN) with a P/E and PEG of 59 and 1.60, respectively, Google (GOOGL) with a P/E and PEG of 31 and 1.26, respectively, Microsoft (MSFT) with a P/E and PEG of 38 and 2.44, respectively and Apple (AAPL) with a P/E and PEG of 28 and 1.43, respectively. Its PE and PEG ratios are the lowest among all big technology names, indicating that its growth relative to value is the best-in-class.
Moat and Growth
Facebook is now 15% off its all-time highs with the cheapest price-to-earnings multiple when compared to its tech cohort. Facebook continues to post unparalleled growth for a company of its size while its platforms are still the go-to properties for advertisers and influencers. If the company continues its path forward on remediating the privacy issues while posting best-in-class revenue growth, the stock will likely continue to elevate higher. Although Facebook has been the go-to platform for advertisers, the boycott (along with all the other public relations issues) is a wake-up call. The company was able to work towards common ground to appease those involved in the boycott before permanent damage was done to the advertising relationships.
Facebook is attempting to put these issues behind the company by spending billions on initiatives to combat fake news, ensure data integrity, implement stringent guidelines on third-party data sharing and overall transparency within its platform. As its recent quarter suggests, increases in costs and expenses demonstrate that the company is serious about tackling these issues head-on and moving forward.
Facebook has a long history of public relations fiascos with Cambridge Analytica, widespread advertising boycott, various data breaches, and the most recent issues exposing internal memos that allege the company put profits before safety on its platforms. After these bombshell allegations and testimony on capitol hill, the stock has been battered and bruised, falling from $384 to $325. The stock is now down 15% from its 52-week high heading into earnings. This double-digit decline places Facebook in inexpensive valuation territory relative to its technology peers, one of the cheapest high-growth stocks.
Facebook has over 3.2 billion monthly users across its platforms (Instagram, Messenger, and WhatsApp) that the company is actively engaging to expand margins and create additional revenue verticals. The company is very inexpensive after selling off 15% from its all-time highs from a valuation standpoint. The company has a superior valuation profile when compared to its technology cohort (Apple, Amazon, Google, and Microsoft). The boycott movement may have hurt Facebook in the public relations arena temporarily. However, it’s been inconsequential in terms of an impact on revenue, and the same will likely hold true as the most recent issues pass. Facebook (FB) continues to post unparalleled growth for a company of its size while its platforms are still the go-to properties for advertisers and influencers. The recent pullback may be a good opportunity for long-term investors.
Disclosure: The author holds shares in AAPL, AMZN, DIA, GOOGL, JPM, MSFT, QQQ, SPY, and USO. He may engage in options trading in any of the underlying securities. The author has no business relationship with any companies mentioned in this article. He is not a professional financial advisor or tax professional. This article reflects his own opinions. This article is not intended to be a recommendation to buy or sell any stock or ETF mentioned. Kiedrowski is an individual investor who analyzes investment strategies and disseminates analyses. Kiedrowski encourages all investors to conduct their own research and due diligence prior to investing. Please feel free to comment and provide feedback, the author values all responses. The author is the founder of www.stockoptionsdad.com where options are a bet on where stocks won’t go, not where they will. Where high probability options trading for consistent income and risk mitigation thrives in both bull and bear markets. For more engaging, short duration options based content, visit stockoptionsdad’s YouTube channel.