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Facebook (FB) Wins the Backing of Sequoia, Stiffens Security

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Facebook (FB - Free Report) continues to enjoy the support of long-term investors. The recent disclosure of Sequoia Fund buying a minor stake in the company makes it more evident.

In a letter to shareholders, the investment committee of the fund mentioned that “Though Facebook has unquestionably committed sins for which it must now atone, we believe it remains a far more competitively advantaged, economically attractive and faster-growing enterprise than the average American business”.

The company has been facing a continuous backlash from all quarters post revelation of the data scandal, which affected 87 million users. As a result, shares of Facebook have lost nearly 9% since Mar 19 as investors became more concerned about the company’s performance.

However, the recent move of Sequoia shows that not all is lost for the company given its strong fundamentals as well as the recent measures to uphold security on its platform. The rising controversy has made the stock cheaper than usual, which Sequoia seems to cash in on.

Notably, Facebook has an average trailing 12-month P/E ratio of 25.56, way below the industry’s average of 28.24.


Focus on More Platform Transparency

Facebook is leaving no stone unturned to regain its lost image. The number of initiatives taken by the company to make its social media platform free of malpractices will help restore the stock’s trustworthiness.

Facebook’s primary prerogative is to add more lucidity to political advertisement in order to “support positive discourse and prevent interference” in the upcoming elections to be held across multiple countries.

To realize that aim, the company has recently announced that going forward, only authorized advertisers will be able to post political ads, which will be labeled as “Political Ad” bearing “paid for by” information.

Facebook is also launching a “view ads” feature that will help checking out all the ads running on a Page. A searchable archive of political ads is also in the making.

Additionally, the company requires to verify people who manage pages, which lures in scores of followers.

Moreover, the company is investing in Artificial Intelligence and recruiting more people to help achieving this goal.
The company has also laid off more than 270 accounts and pages operated by the Russian organization, Internet Research Agency (IRA), which was allegedly involved in influencing the 2016 U.S. presidential election. It also suspended two more data analytics companies, namely CubeYou and AggregateIQ over unauthorized handling of user data.

Therefore, the company’s strong fundamentals and constant efforts to pull the plug on security loopholes make us confident about its long-term growth prospects.


Zacks Rank & Other Stocks to Consider

Facebook carries a Zacks Rank #2 (Buy). Some other top-ranked stocks in the broader technology sector are NVIDIA Corporation (NVDA - Free Report) , Micron Technology, Inc. (MU - Free Report) and Paycom Software (PAYC - Free Report) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for NVIDIA, Micron and Paycom is projected at 10.3%, 10% and 25.8%, respectively.

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