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FB Stock Still Looks Like a Buy Despite Facebook, Zuckerberg Backlash

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Facebook (FB - Free Report) has been embroiled in privacy scandals, Russian election interference backlash, and more for well over a year now. Despite all of the negativity, it seems that the average Facebook user doesn’t seem to care, at least not enough to ditch the social media power.

Recent News

House Speaker Nancy Pelosi called out Facebook last week for not taking down an edited video that appeared to depict Pelosi stumbling and speaking very slowly during a speech. Facebook let the video remain up, while Google-owned (GOOGL - Free Report) YouTube reportedly removed the video. “There's a tension here: we work hard to find the right balance between encouraging free expression and promoting a safe and authentic community, and we believe that reducing the distribution of inauthentic content strikes that balance," a Facebook spokesperson wrote last week.

Doctored videos are likely to become more of a hot button issue as deepfakes become more realistic—but this won’t just be a Facebook problem. Meanwhile, protesters gathered outside of the company’s Menlo Park, California offices Thursday to voice their various concerns at company's annual shareholder meeting. CEO Mark Zuckerberg’s outsized voting power was once again an issue, but nothing really changed on that front.

Overview

The backlash against Facebook from governments to outspoken citizens and activist groups is likely to remain as long as the firm remains a powerful influence over the spread of information. But if the FB doesn’t see its users leave, and or face serious government intervention, then Facebook stock seems to be worth considering.

Last quarter, Facebook’s daily and monthly active user totals climbed 8%. Company executives estimate that around 2.7 billion people use at least one of its “family” of services—which includes Facebook, Instagram, WhatsApp, and Messenger—every month. Meanwhile, FB’s Q1 revenue climbed 26% and topped our Zacks Consensus Estimate.

Facebook is expected to see its share of the U.S. digital advertising market remain at roughly 22% in 2019, second behind only Google’s 40%. And FB’s ability to attract advertisers might become stronger as Instagram grows in popularity and non-ad supported entertainment platforms such as Netflix (NFLX - Free Report) and soon enough Disney (DIS - Free Report) , make consumers harder to reach.

FB stock closed regular trading Thursday up 0.45% to $183.01 per share, down roughly 17% from its 52-week intraday trading high of $218.62 per share.

 

 

Outlook

Aside some voting rights, Zuckerberg talked about the future of Facebook at its annual stockholder meeting. The CEO said his company is working on different projects that will involve AI voice assistant technology in an effort to catch up to fellow giants Amazon (AMZN - Free Report) and Apple (AAPL - Free Report) . “I imagine there are going to be more products that we build where voice is going to be an important interface over the coming years,” Zuckerberg said at the company’s Thursday meeting. “We’re working on a lot of different things around this.”

Facebook currently sells multiple Portal video chat devices that use Amazon Alexa. On top of this, Facebook’s new Oculus Quest virtual reality headsets—which start at $399—reportedly sold out early across Amazon, Walmart (WMT - Free Report) , and other outlets. Facebook is also pushing deeper into e-commerce through Instagram. Zuckerberg has also detailed plans about how his firm 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.

Our current Zacks Consensus Estimate calls for Facebook’s full-year 2019 revenues to climb roughly 24% to reach $69.22 billion. Jumping further ahead, the firm’s 2020 revenues are projected to surge 21.1% above our current year estimate to hit $83.87 billion.

Earnings Trends

Facebook has committed to spending far more than normal on things such as security improvements in fiscal 2019. This is expected to eat into its profits and margins, with adjusted full-year earning projected to slip 6.3% to $7.09 per share. However, Facebook’s adjusted 2020 EPS figure is expected to surge over 31% above our current year estimate to reach $9.30 per share.

We can also see that Facebook’s earnings estimate revision activity for 2020 has trended completely in the right direction to help lift its overall consensus estimate by over 5% in the last 60 days.

 

 

Bottom Line

Facebook is Zacks Rank #2 (Buy) at the moment, thanks in large part to the positive earnings estimate revisions we just touched on. Plus, FB is trading at 21.4X forward 12-month Zacks Consensus EPS estimates right now. This marks a discount compared to its industry’s 26X average and its own three-year high of 37.1X and 27.3X median. Therefore, investors should be able to say with some confidence that FB stock appears “cheap." In the end, Facebook seems like it might be a solid tech stock to add to your portfolio, as its business looks set to expand.

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