FB stock broke into a buy zone on April 5, hitting its first new high in seven months. A huge start for Facebook’s Shops digital mall has renewed optimism over the FANG stock.
The spark came on March 19, when Facebook (FB) CEO Mark Zuckerberg gave a rousing update on the social media giant’s big e-commerce push. He also suggested that a new privacy measure from Apple (AAPL), which is among investors’ biggest worries, could actually be a blessing in disguise for Facebook.
Yet Zuckerberg expressed confidence that Facebook will “manage through that situation well.” He added, “We may even be in a stronger position if Apple’s changes encourage more businesses to conduct commerce on our platforms.”
Still, there was a rare note of analyst caution — and an even rarer downgrade from a Wall Street firm — on April 13. Wedbush analyst Ygal Arounian gave FB stock a neutral rating and 340 price target, slashing the firm’s prior 375 target. He sees tighter privacy standards as a significant near-term headwind, but his target still implies more than 10% upside.
Facebook blew away Q4 earnings estimates on Jan. 27, posting its fastest revenue growth in more than two years. Q1 earnings out after the close on April 28 could be equally impressive. So is now a good time to buy FB stock?
Facebook Shops Takes Off
On the PressClub podcast on March 19, Zuckerberg announced that Facebook Shops, first announced last May, has more than 1 million active shops in its digital mall and 250 million shoppers, or at least browsers, per month.
Shops is Facebook’s big effort to bring e-commerce purchases in-house, instead of just facilitating user-advertiser connections that result in off-site purchases. Businesses can set up a single shop for customers to access on both Facebook and Instagram.
Morgan Stanley analyst Brian Nowak said in a research note that the scale Shops has achieved in just 10 months “should give investors more confidence in the durability of FB’s multiyear growth.”
Nowak said Morgan Stanley’s AlphaWise survey had previously suggested that about 30% of Americans are shopping on Facebook’s Instagram site per month. Morgan Stanley has estimated $1.9 billion in annual revenue tied to Instagram Shops. Zuckerberg’s disclosure “implies that the global contribution from Shops this/next year is likely to be larger than our ~$1.9bn annual estimate,” Nowak wrote.
Despite Facebook’s huge Q4 earnings, which sparked a flurry of analyst price-target hikes, FB stock suffered a nasty reversal the next day.
Investors appeared to focus on CFO Dave Wehner’s prediction of “high opt-out rates” from allowing Facebook to track users’ activity across third-party sites. Opt-outs mean Facebook will know less about users’ interests, life changes and purchases.
Facebook has warned that ongoing privacy regulation and changes in mobile operating platforms could impede ad targeting and weigh on ad pricing.
Apple’s spring update for Apple’s iOS 14 will require Facebook and other apps downloaded through the App Store to provide users a prompt, allowing them to opt in or out of tracking their activity across third-party sites. Google plans to eliminate third-party cookies to track user activity from its Chrome browser in 2022.
“It doesn’t do a local wedding planner any good to reach people who aren’t planning a wedding,” wrote Dan Levy, Facebook vice president of ads and business products, on Dec. 16.
Small businesses could see a cut of over 60% of website sales from ads without ad-targeting, Facebook has estimated. Ahead of the Q4 report, Evercore ISI analyst Kevin Rippey wrote that analysts saw as much as a 10% short-term revenue hit in the worst case, though he thought that the drag would be much smaller.
The success of Facebook Shops limits the downside of Apple’s privacy change, Morgan Stanley’s Nowak said. Bringing “the merchant transaction onto the platform removes the need for off-platform tracking,” he wrote.
Zuckerberg suggested that Apple’s changes could “encourage more businesses to conduct commerce on our platforms” to make the most of their internal data for advertising purposes.
Still, Wedbush’s Arounian thinks Facebook’s commerce opportunities are balanced by privacy headwinds in the near-term. “Facebook has been the strongest digital ad platform at effectively tracking and targeting users across the web and has the most to lose from losing signal with more limited tracking capability,” he wrote.
Another potential issue: To the extent Facebook’s advertising prowess depends driving more on activity within Facebook and Instagram, the implications of a breakup become bigger.
FB Stock Analysis
FB stock surged on Zuckerberg’s Shops talk, clearing the Jan. 28 high of 286.79 and an early entry point of 286.89.
After rising as high as 299.71 on March 22, FB stock pulled back to its 21-day moving average while creating a handle on the end of its long consolidation. That created an actionable buy point at 299.81, 10 cents above the top of handle.
FB stock charged into a buy zone April 5, rising 3.4% to 308.91. It peaked on April 8 at 315.88. The modest pullback since has come on below-average volume. FB stock tested that buy point on April 20 but closed slightly higher, above its 21-day moving average.
The 5% chase zone from the handle buy point runs through 314.80. However, there’s a bit more headroom if investors use 304.77, 10 cents above the August high, as an alternate entry.
It’s possible that FB stock is forming a high handle over the past couple of weeks, offering another buy point at 315.98.
FB stock’s relative strength line, the blue line in the charts provided, came well off its August peak as the stock lagged the S&P 500’s performance. After hitting bottom in mid-January, Facebook’s RS line established a new uptrend, which remains intact despite recent weakness.
Facebook earnings easily surpassed fourth-quarter estimates. The FANG stock earned $3.88 per share, up 52% from a year ago and 69 cents ahead of the consensus. Revenue surged 33% to $28.1 billion.
The accelerating revenue growth came despite a further dip in daily active users in the U.S. and Canada to 195 million, down from 198 million in Q2. Facebook had previously warned that a spike in use of the social media app that occurred early in the pandemic would moderate as life normalized.
The bigger picture is that Facebook advertisers, a group that has grown to more than 10 million businesses, are using the social media site to connect with prospective customers like never before.
Worldwide daily active users rose to 1.845 million on the Facebook platform vs. 1.82 million the prior quarter, led by growth in the Asia-Pacific region. Across all platforms, daily active users hit 2.6 billion.
Q4’s growth came as ad impressions served across Facebook properties grew at a slower 25% pace vs. a year ago. However, the average price per ad rose 5%, after falling 9% in Q3.
Facebook earnings for the first quarter are due on April 28.
Wall Street Analysts Shrug Over Facebook Antitrust Suits
On Dec. 9, the Federal Trade Commission and a group of state attorneys general filed separate antitrust cases alleging that Facebook’s acquisitions of Instagram and WhatsApp were anticompetitive in nature and intended to bolster its monopoly position.
The FTC wants Facebook broken up to create the same level of competition that would have existed without the Instagram and WhatsApp mergers. So far analysts are largely dismissing the possibility of a breakup.
Could analysts be wrong about the outcome? The challenge for the government plaintiffs will be to prove that the mergers didn’t only reduce competition, but that they were actually harmful. Antitrust lawyers will try to prove their case by showing reduced privacy for users, higher prices for advertisers, and unfair competition against smaller competitors. Facebook reportedly tried to avert an antitrust suit by offering to license access to its code as a way of enabling new competition, but regulators weren’t swayed.
How Much Is FB Stock Worth?
FB Stock: Is It A Buy?
Facebook proved its mettle during an unprecedented economic downturn, and Wall Street analysts think this FANG stock still has a long growth runway.
Facebook stock boasts a strong 96 IBD Composite Rating. The Composite Rating combines several key fundamental and technical factors into a single score. IBD research shows all-time stock winners often have a Composite Rating of at least 95 near the start of big runs.
It’s dangerous to bet against FB stock, even as it faces a long antitrust battle and regulatory threats. Growth stocks could continue to face headwinds from rising interest rates. Yet Facebook has showed impressive agility with its well-timed e-commerce push. Now, despite lingering concern that privacy changes may dent Facebook’s advertising edge, FB stock is showing resilience, reaching a proper entry point and holding firm.
Bottom line: FB stock is a buy. Investors can “like” this FANG stock again.
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