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Buy 'Cheap' Facebook (FB) Stock on Cryptocurrency & WeChat-Style Push?

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Shares of Facebook (FB - Free Report) have soared over 31% this year to crush the S&P 500, double its industry’s climb, and nearly match FAANG peer Netflix’s (NFLX - Free Report) 33% jump. Despite this climb, Mark Zuckerberg’s company remains in the headlines and faces backlash in Washington over its use of user data and control over the spread of information.

Yet, the company’s user base continues to grow at a time when marketers have fewer advertising options, which should keep Facebook humming along for years to come. Plus, Facebook is reportedly set to jump into the cryptocurrency market and Zuckerberg wants to try to become more of a private messaging, payments, and e-commerce platform, akin to Chinese powerhouse WeChat.

Recent News  

Facebook is currently developing a cryptocurrency offering that would be linked to the value of traditional currencies, according to reports from Bloomberg and other outlets. The social media powerhouse wants to introduce a way for users to pay for things through its platforms.

On Monday, Barclays analyst Ross Sandler told clients that Facebook’s cryptocurrency push could generate as much as $19 billion in additional revenue by 2021, with the base-case set at $3 billion. Clearly, there are real challenges to a successful implementation of a Facebook currency, which include trust and security concerns, not to mention the challenge of convincing people they should convert their Money into “Facebook Coin.”

Meanwhile, Zuckerberg detailed plans in a blog post last week about how Facebook could start to focus on private encrypted messaging, payments, and other services. The move would shift Facebook more toward Tencent’s (TCEHY - Free Report) WeChat model, which allows its roughly 1 billion users to chat, order food, buy tickets, make dinner reservations, shop, and much more.

Chinese giant WeChat’s popularity and do-everything abilities helps make actual mobile devices from the likes of Apple (AAPL - Free Report) and Xiaomi less important. Still, it remains unclear how serious this push toward a more personalized one-stop shop for personal communication and shopping is. But investors will likely be pleased by anything that diversifies Facebook’s business model.  

 

 

Overview

Advertising accounts for roughly 98% of Facebook’s revenue. This has obviously been a successful business model for years and it will likely continue as non-ad supported streaming platforms such as Amazon Prime (AMZN - Free Report) , Netflix, and soon enough Disney (DIS - Free Report) and AT&T (T - Free Report) make consumers harder to reach. Plus, Facebook’s new stories feature has become attractive to marketers and Instagram’s rise to popularity has made Snapchat (SNAP - Free Report) less relevant.

Facebook is set to see its share of total U.S. digital ad spending pop slightly this year to 22.1%, according to eMarketer—Google (GOOGL - Free Report) controls roughly 40%. Investors should also note that Facebook has invested in its Marketplace platform, augmented reality, and its dedicated video offering known as Facebook Watch.

On top of that, Facebook stock hovered at roughly $172 a share. This marked a 22% downturn from its 52-week high of $218.62 a share, despite its recent climb, which gives the stock plenty of room to run. FB stock is also trading at 22.2X forward Zacks earnings estimates at the moment. This represents a discount compared to both its industry’s 25.8X average and its own three-year high of 44.3X and 27.8X median. This means we can say with some confidence that Facebook stock appears to be relatively “cheap.”

 

 

Outlook

Looking ahead, our current Zacks Consensus Estimate calls for Facebook's first quarter 2019 revenue to jump 25% to hit $14.96 billion. This would mark a slowdown from Q4’s 30% top-line growth and a larger downturn from previous quarters as the law of large numbers makes it harder to post impressive year over year expansion. Meanwhile, the company’s fiscal 2019 revenue is expected to surge 23.4% to hit $68.89 billion. Peeking even further ahead, Facebook’s 2020 revenue is projected to come in 20.6% above our current year estimate at $83.05 billion.

At the bottom end of the income statement, we can see that Facebook’s full-year earnings are expected to dip slightly. But Facebook warned Wall Street of this downturn when it said it would spend billions on security upgrades and more. And we can see that Facebook’s 2020 earnings are projected to come in strong and its earnings estimate revision activity has trended solidly in the right direction.

 

 

Bottom Line

At the end of the day, Facebook boasts that 2.7 billion people, or around 35% of the world’s population, now use Facebook, Instagram, WhatsApp, or Messenger every month. This alone will likely keep the company growing for years to come—unless there is some type of serious government intervention. And if Facebook is able to expand into new growth areas as it plans to, the social media giant could be poised for even greater expansion.

Facebook is a Zacks Rank #3 (Hold) at the moment that sports a “B” grade for Growth in our Style Scores system.

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