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Buy Facebook (FB) Stock for 2020 Despite Political Worries?

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Facebook shares have climbed 57% in 2019 to outpace all of its FAANG peers, aside from Apple (AAPL - Free Report) . The social media firm continues to bring in more users amid the constant backlash and political scrutiny.

Facebook’s Pitch

Facebook’s pitch to Wall Street and investors remains straight forward. Mark Zuckerberg’s firm is a high-margin, digital advertising behemoth, with a ton of cash. Despite the continued political backlash, Facebook’s daily active users climbed surged 9% last quarter to reach 1.62 billion, while MAUs popped 8% to 2.45 billion—MAU expansion matched Q1 and Q2, while DAU’s growth rate came in 1% higher.

Facebook doesn’t break out its specific platforms, but there is no doubt that its 2012 purchase of Instagram for just $1 billion has proven to be a steal. Facebook now expects that roughly 2.7 billion people use at least one of its “Family of services” each month, which includes its namesake platform, Instagram, WhatsApp, and Messenger.

Facebook is projected to grab over 22% of total U.S. digital ad spending in 2019, behind only Google (GOOGL - Free Report) and well ahead of third-place Amazon’s (AMZN - Free Report) .

Looking ahead, digital advertising is expected to climb from 46% of the total global ad market in 2018 to 60.5% by 2023, according to eMarketer. And Facebook, which currently makes roughly 99% of its money from ads, will likely become even more valuable to marketers in a Netflix (NFLX - Free Report) age, where consumers are harder to reach.

Zuckerberg and Facebook have, however, expanded into new areas such as e-commerce, through its Facebook Marketplace. The firm has also bolstered its streaming and live video push as Disney (DIS - Free Report) and others jump into the growing market.

Plus, Zuckerberg still wants to go forward with his cryptocurrency plans despite setbacks and pushback. Facebook is also reportedly pursuing music video rights in an effort to challenge YouTube and it has jumped into the home device market with its Facebook Portal.

 

 

 

 

Other Fundamentals

Last quarter, Zuckerberg decided to continue to allow uncensored political ads to run across Facebook’s various platforms, amid backlash heading into the 2020 presidential election. This stood in direct opposition to Twitter .

Facebook’s chief executive took a stance that he acknowledged might put his company in the spotlight during the 2020 election cycle, but spoke relatively openly on Facebook’s earnings call about being on the side of free expression.

Zuckerberg also said on Facebook’s Q3 earnings call that it will “make structural changes and build a rigorous privacy program that will set a new standard” for the industry as part of its FTC settlement. Investors should remember that FB has arealdy paid a historic $5 billion Federal Trade Commission fine but still faces further antitrust reviews as part of a larger U.S. government probe into tech giants, including Google.

With all of this in mind, investors can see in the chart above that Facebook stock has soared back to its summer 2018 highs. FB stock is up 57% in 2019 to outperform its industry’s 25% comeback and the S&P 500’s 27% surge.

Despite the fact that Facebook shares rest right near their 52-week highs, FB is trading at 22.4X forward 12-month Zacks earnings estimates. This represents a discount against its industry’s 29.3X average and it owns two-year high of 31.5X.

The company also ended Q3 with $52.27 billion in cash, cash equivalents and marketable securities, with a 41% operating margin—down only 1% from the year-ago period despite higher spending.

 

 

 

 

Outlook

Our current Zacks estimates call for Facebook’s fourth quarter sales to jump 23.1%, with FB’s full-year fiscal 2019 revenue projected to climb 26.2% from $55.84 billion to $70.20 billion. Peeking further ahead, FB’s 2020 sales are expected to climb roughly 21.5% higher to touch $85.55 billion.

It is important to note that both these full-year estimates would represent Facebook’s slowest sales growth as a public firm. For example, FB’s 2018 sales jumped over 37%, with 2017 up 47% and 2016 up 54%. But Wall Street and traders have seen this slowdown coming.

On the bottom line, the firm’s adjusted full-year EPS figure is still expected to slip 16% as it spends more heavily to improve security, expand, and more. Then a comeback appears to be on, with its Q1 fiscal 2020 EPS figure projected to soar 121% and its fiscal 2020 earnings are expected to surge over 42% above our 2019 projection.

 

 

 

 

Bottom Line

Facebook’s earnings revision trends have been mixed recently to help it hold a Zacks Rank #3 (Hold). FB also sports an “A” grade for Growth in our Style Scores system.

Some investors might want to stay away from Facebook because of the political uncertainty, but that didn’t stop it from soaring back to its 2018 highs during this last year.

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