Facebook (FB - Free Report) shares, like Netflix (NFLX - Free Report) and other tech giants, have bounced back in a big way in 2019 to crush the S&P 500’s larger comeback. Despite the climb, shares of FB still rest far below their summer 2018 highs and Facebook’s growth outlook appears solid despite all of the controversies surrounding the social media powerhouse, especially compared to the likes of Apple (AAPL - Free Report) as iPhone sales slump.
Facebook has faced backlash from governments and users over its handling of data, as well as its outsized control over the spread of information, among other worries. Privacy concerns could truly hurt the company if the public ever really grow concerned enough or unwilling to go along the current course. At this point, however, Facebook appears to be ready to expand its business and slowing user growth seems to be more of a function of its massive reach and the law of large numbers than a real existential risk for Facebook and its other core platforms.
Advertising accounts for roughly 98% of Facebook revenue and seems likely to continue based on the way the entertainment age is trending. Linear TV and other traditionally ad-supported media like print are all trending in the wrong direction. Coupled with the rise of subscription-based streaming services such as Amazon Prime (AMZN - Free Report) , Netflix, Hulu, and soon enough Apple, Disney (DIS - Free Report) and AT&T (T - Free Report) , marketers and advertisers will have fewer and fewer viable options—and ads are certainly not going to disappear anytime soon.
Therefore, Facebook’s share of the advertising pie is likely to climb, especially as Instagram’s popularity grows among brands and marketers in the mobile-focused age. Looking ahead, Facebook’s share of total U.S. digital ad spending is expected to pop slightly this year to 22.1%, according to eMarketer—Google (GOOGL - Free Report) controls roughly 40%. Investors should also be happy to note that Facebook seems to have plans in place to pivot if users or regulators demand more or change course.
For instance, Mark Zuckerberg recently detailed plans about how Facebook could start to focus on private encrypted messaging, payments, and other services in a move that would see it transition toward Tencent’s (TCEHY - Free Report) WeChat model. The company is also reportedly working on developing a cryptocurrency that would be linked to the value of traditional currencies. Obviously, none of these moves are in place and they may never pan out. Nonetheless, Facebook’s outlook appears relatively strong.
As we can see, Facebook’s top-line expansion has been impressive over the years. Plus, our current Zacks Consensus Estimate calls for a slowdown. But eventually massive year-over-year growth becomes harder to come by, and slower, steadier revenue growth kicks in.
Facebooks Q1 2019 revenue is projected to surge 25% to hit $14.96 billion. This would mark a slowdown from Q4’s 30% top-line growth. FB’s full-year 2019 revenues are expected to surge 23.4% to reach $68.89 billion, down from fiscal 2018’s 37% revenue growth. However, last year also marked a major slowdown from 2017’s 47 % revenue growth.
Peeking ahead to 2020, the firm’s revenue is projected to jump 20.6% above our current year estimate to hit $83.05 billion. At the same time, Apple’s 2019 revenues are expected to dip 4.2%, with 2020 revenues projected to pop just 3.1% above our current-year estimate, to come up short of 2018’s $265.60 billion. Meanwhile, Amazon’s 2019 revenues are projected to jump 18% to $275.58 billion, down from 2018’s 31% full-year expansion.
At the bottom end of the income statement, Facebook’s full-year earnings are expected to dip 0.53% to $7.53 per share, as it spends heavily on security upgrades and innovations. Despite the small anticipated downturn, Facebook’s 2020 earnings are projected to climb over 17% above our 2019 estimate. Plus, analyst sentiment regarding FB’s earnings outlook has trended heavily upward recently.
Facebook is Zacks Rank #2 (Buy) at the moment based on its recent earnings estimate revision trends. FB also sports a “B” grade for growth in our Style Scores system. Along with its growth outlook, FB stock is trading at 21.2X forward 12-month Zacks Consensus EPS estimates, which marks a discount compared to its industry’s 26X average and its own three-year high of 44.3X and 27.7X median. Therefore, it’s not too hard to say that Facebook stock appears to be “cheap” right now.
FB stock closed regular trading Tuesday at $167.68 per share, down 23% from its 52-week high of $218.62. This gives the stock room to run. And just remember that roughly 2.7 billion people, or around 35% of the world’s population, now use Facebook, Instagram, WhatsApp, or Messenger every month.
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