Facebook - Frustrating and Volatile Situation

Facebook Inc. (FB) continues to be plagued by a slew of issues ranging from international regulatory scrutiny, user privacy issues, high-level employee mass exodus, and questionably toxic company culture. As a result of these overarching issues weighing on the company, the stock has become volatile with dramatic moves in both directions. The stock has traded over a $95 per share range during the past 52 weeks, logging a high of $218 and a low of $123. The magnitude of this move has been frustrating as one issue after another seems to impact the stock despite record revenue and EPS negatively. Pundits argue that the negative confluence of the issues above will drive up costs, narrow revenue streams and weaken the user base. The privacy scandal has already resulted in increased costs surrounding compliance, monitoring, censorship and scrubbing the platform from deceptive marketing.

PR Disaster

Facebook has been mired in privacy scandals, public relations mismanagement, a conference call that wiped out $119 billion in market capitalization in a single session and a very public exodus of many high-level departures across the company. There’s a laundry list of mishaps originating from its data misuse scandal involving Cambridge Analytica as that continued to surface across the globe. Security issues affecting 50 million accounts, a lawsuit alleging concealing video admeasurements and increasing EU scrutiny plagued the stock. The list continues to evolve, and now there’s a report that Facebook stored user passwords unencrypted for years while its AI is still being refined due to its inability to remove the New Zealand terrorist attack video promptly before it was viewed 4,000 times. Additionally, Facebook’s network of products suffered an outage which impacted Instagram and Whatsapp as well as its flagship Facebook platform (Figure 1). Facebook has a lot of work ahead of its to reign-in all these issues and retain talent in what appears to be a questionable company culture. Continue reading "Facebook - Frustrating and Volatile Situation"

Is Facebook Finally A Buy After The Tech Rout?

Is Facebook (FB) finally de-risked after its self-inflicted data misuse privacy scandal and the rout in the technology sector? Facebook has been mired in privacy scandals, public relations mismanagement and a very public exodus of many high-level departures across the company. If this wasn’t bad enough, Facebook totally dropped the ball on its second quarter conference call, wiping out $119 billion in market capitalization in a single session marking the worst one day drop for any large-cap company in history. This negative backdrop was met with a technology sell-off in the fourth quarter of 2018 culminating into the perfect set-up to knock the stock into bear market territory. Facebook sold-off during these two waves from $218 in July to a low of $123 in December of 2018, logging a 43% decline over this five-month period. Despite the aforementioned stock implosion, Facebook remains one of the most compelling large-cap growth companies posting double-digit growth with P/E and PEG ratios well below its peers. Recently, JPMorgan reiterated Facebook as a “best idea” and expects the stock reach $195 and “climb the wall of worry.” Baird also came out with an outperform rating basing its target of $195 on stabilizing engagement on its Facebook platform and growth in its Instagram property. Facebook has grown its revenues by over 30% for 20 consecutive quarters with its latest quarter coming in at 33% revenue growth. As this revenue streak continues coupled with the dramatic decline in its stock and cheap valuation, I think Facebook is de-risked. The technology cohort has started to show signs of resurgence with Facebook and Netflix (NFLX) leading the pack with plenty of upside for the former.

2018 Disaster

Ancillary fallout emanating from its data misuse scandal involving Cambridge Analytica continued to surface throughout 2018 across the globe in various regions. Security issues affecting 50 million accounts, a lawsuit alleging concealing video admeasurements and increasing EU scrutiny plagued the stock. The original mishandling user data resulted in the stock tumbling from $195 to $152 or ~20% at the time. Facebook appreciated off those data misuse lows and broke out to $220 however this scenario ended abruptly on the heels of its Q2 earnings. Facebook issued a major guide down in growth for the next few quarters tampering growth expectations in the near term. Facebook faced a challenging confluence of slowing revenue growth, margin compression and stagnant daily active users in the near to intermediate term. There was an initiative that had the backing of four large institutional investors to remove Mark Zuckerberg as Facebook’s chairman in the wake of all of these security issues. Continue reading "Is Facebook Finally A Buy After The Tech Rout?"

Facebook - Compelling Buy Heading Into Q3 Earnings

Facebook’s (FB) disastrous second quarter conference call erased $119 billion in market capitalization in a single session marking the worst one day drop for any large-cap company in history while the stock shed a fifth of its value. Since then, ancillary fallout emanating from its core data misuse scandal involving Cambridge Analytica continue to surface.

Security issues affecting 50 million accounts, a lawsuit alleging concealing video ad measurements and increasing EU scrutiny have continued to plague the stock since its second-quarter implosion. The original mishandling user data resulted in the stock tumbling from $195 to $152 or 22% at the time. Facebook appreciated off those data misuse lows and broke out to $220, however, this scenario ended abruptly on the heels of its Q2 earnings. Facebook issued a major guide down in growth for the next few quarters tampering growth expectations in the near term. Facebook is facing a challenging confluence of slowing revenue growth, margin compression and stagnant daily active users in the near to intermediate term.

There’s been a recent initiative that has the backing of four large institutional investors to remove Mark Zuckerberg as Facebook’s chairman in the wake of all of these security issues. Despite these headwinds, Facebook is still posting accelerating revenue growth across all geographies, expanding market penetration with Instagram’s IGTV, Facebook’s Stories and monetization efforts in Messenger and WhatsApp. Facebook is still poised to grow at a double-digit clip with the most recent growth rate coming in at 42% in Q2.

The long-term picture looks bright for Facebook, and the recent sell-off in the stock and tech cohort is a good opportunity to initiate a long position as the company contends with and addresses all the issues across its platforms (Figure 1). Facebook remains a premier large-cap growth stock and inexpensive relative to other large-cap growth stocks in its cohort heading into Q3 earnings.

Facebook
Figure 1 – FANG cohort performance throughout the tech sell-off with Facebook, Amazon, Netflix, and Google all shedding ~10% of their market capitalization

Scandals and High-Level Departures

There’s been a slew of negative press regarding additional issues negatively impacting the company’s platform and inflicting further damage on its reputation. Facebook disclosed a security issue that affected 50 million accounts. Continue reading "Facebook - Compelling Buy Heading Into Q3 Earnings"

Facebook - $119 Billion Disastrous Conference Call

Facebook’s (FB) fundamentals were shining bright and outweighed its data misuse scandal from months’ prior leading into its Q2 earnings. In the wake of mishandling user data, Facebook’s stock tumbled from $195 to $152 or 22%. Facebook was well off those data misuse induced sell-off lows and marched right through its previous 52-week high and broke out to $219 for a nice ~44% rebound. This scenario ended abruptly on the heels of its Q2 earnings which came in shy of analysts’ expectations on the revenue front. Facebook also issued a major guide down in growth for the next few quarters tampering growth expectations in the near term. Facebook is facing a challenging confluence of slowing revenue growth, margin compression and stagnant daily active users in the near to intermediate term. Facebook’s CFO stated that investors could expect "revenue growth rates to decline by high single-digit percentages from prior quarters." Despite these headwinds, Facebook is still posting accelerating revenue growth across all geographies, expanding market penetration with Instagram’s IGTV, Facebook’s Stories and monetization efforts in Messenger and WhatsApp. Factoring in this high single digit decrease in revenue, Facebook is still poised to grow at a double-digit clip with the most recent growth rate coming in at 42% in Q2. The long-term picture looks bright for Facebook, and the recent sell-off is a good opportunity to initiate a long position as the company contends with and addresses all the issues across its platforms. Facebook remains a premier large-cap growth stock and inexpensive relative to other large-cap growth stocks in its cohort.

Disastrous Conference Call

Well, that was a disaster of a conference call. Facebook posted the largest one-day loss in market value by any company in stock market history. Facebook shed $119 billion worth of market capitalization after dropping ~20%. No other company has ever lost greater than $100 billion in market value in a single day (Figure 1). To add insult to injury, this was also Facebook’s worst day ever on the stock market. This sell-off came on the heels of a minor Q2 advertising revenue miss of $13.04 billion versus expectations of $13.16 billion and lower than expected daily active users in Europe. Key metrics suffered from data misuse and fake news issues within its platform. Continue reading "Facebook - $119 Billion Disastrous Conference Call"

Facebook Posts Revenue Growth Despite Public Relations Fiasco

Noah Kiedrowski - INO.com Contributor - Biotech - Facebook Posts Revenue Growth


Introduction

Public relations fiasco is putting it lightly in the wake of the Cambridge Analytica data misuse scandal. Once the news broke that Facebook Inc. (FB) was behind the mishandling of user data that was shared with a politically connected firm during the 2016 presidential race, Facebook’s stock tumbled from $195 to $152 or a 22% slide. Mark Zuckerburg went into damage control mode via rolling out transparency tools, metrics, impacted user details and testifying before Congress. The border questions of potential regulation, public backlash, additional data misuse cases and whether or not any material impact to revenue, as a result, remain in question. Over the past few quarters, Facebook has ramped up spending on initiatives to combat fake news, ensure data integrity, implementing stringent guidelines on third-party data sharing and overall transparency within its platform. Thus far, the early fallout from the Cambridge Analytica scandal has been immaterial to revenue albeit the recent quarterly numbers only reflect roughly two weeks of post-scandal numbers. Facebook had already moved to overhaul its news feed in favor of “meaningful social interactions” versus “relevant content” to improve its user experience.

Despite all the headlines regarding the privacy scandal, Facebook posted a monster blowout for its Q1 2018 numbers. Daily active users rose 13% to 1.45B for March, and monthly active users also rose 13%, to 2.2B as of March 31, 2018. Ad revenues grew by 50% to $11.8 billion from a year-ago $7.9 billion. As a result, many Wall Street firms have increased their target prices as a result of Facebook’s monster growth. Wedbush raised its target to $275, Mizuho to $255; SunTrust to $230; Goldman Sachs to $225, Deutsche Bank to $205 and Stifel Nicolaus to $175. Facebook remains incredibly cheap considering its phenomenal growth with a P/E of 28.7 and PEG of 1.08 at a stock price of $174. I maintain my long thesis with a price target of $220 by the end of 2018. Continue reading "Facebook Posts Revenue Growth Despite Public Relations Fiasco"