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"