The New Year hasn't gotten off to a promising start for Facebook (NASDAQ :). The social media giant, embroiled in multiple controversies, is seeing its stock plummet as the appeal of its investments wanes after a robust rebound from last March's pandemic-induced plunge.
Facebook stock is down more than 8% this year, and it is different from other mega-tech stocks. Shares closed at $ 245.64 yesterday, down about 18.5% from its August high.
Facebook Weekly Chart.
The greatest risk of keeping investors on the sidelines is related to multiple lawsuits facing the company. Facebook was sued in December by US antitrust officials and a coalition of states seeking to break up the company, calling the acquisition of Instagram and WhatsApp illegal. These deals were part of a campaign to illegally suppress competition, according to the government.
The cases represent the largest regulatory attack against Facebook in the company's history. They follow the US Department of Justice lawsuit against Alphabet (NASDAQ 🙂 (NASDAQ 🙂 in October. Together, the actions of Google and Facebook mark the most important monopoly cases filed in the US since the Justice Department sued Microsoft (NASDAQ 🙂 in 1998, Bloomberg said. Unlike the Google case, Facebook's complaints are seeking a court order to split the company.
In addition to these regulatory hurdles, the platform is also at the center of political turmoil in the US after it decided to block President Donald Trump's and white supremacist accounts in the wake of mafia attacks on Capitol Hill last week . The move, which other social media giants followed, has exasperated millions of Trump supporters who accuse Facebook CEO Mark Zuckerberg of taking sides in this political battle.
According to an analysis in the Wall Street Journal:
“The problems have swallowed Facebook for much of the Trump administration and are likely to persist for the foreseeable future as it withstands competing criticism from some that it does too little to curb problematic content and others that his efforts to moderate censorship. ”
Change in data sharing policy
In the midst of this controversy last week, Facebook's WhatsApp started warning its 2 billion users that if they want to stay the popular messaging app They must accept new terms on data sharing policies.
Since 2016, WhatsApp has been sharing certain information with Facebook. But users previously had the opportunity to opt out. However, starting February 8, users in the app will be prompted to accept the updated terms in order to continue using WhatsApp.
According to some media reports, the change has sparked a wave of downloads of privacy-focused messaging apps, including Signal and Telegram, as users searched for alternatives to Facebook-owned WhatsApp. Elon Musk, CEO of Tesla (NASDAQ :), also advised his followers to use Signal.
Signal saw approximately 7.5 million installs worldwide between January 6 and January 10 via the Apple (NASDAQ 🙂 App Store and Google Play Store, citing Sensor Tower data, according to CNBC.com. That is 43 times the number of the previous week. These are the highest weekly or even monthly installation numbers for Signal in the history of the app. Meanwhile, Telegram saw 5.6 million downloads worldwide from Wednesday to Sunday, according to Apptopia.
Impact on Facebook Operations
For long-term investors, the primary question is: How damaging could these headwinds be to the company, which has already slowed significantly during the pandemic. see sales growth?
Many analysts, who have studied the recent regulatory challenges, believe that FB's business model is strong enough and that these issues are unlikely to hurt the company's earnings potential.
"We believe Facebook virtually owns the social graph, strong competitiveness and focus on the user experience, making it a sustainable blue chip company built for the long haul," said JP Morgan analyst Doug Anmuth in a statement. recent comment.
Anmuth, who has a $ 330 price target for Facebook, added:
"Facebook is in a thin air about the combination of scale, growth and profitability as the company's tremendous reach and engagement continue to drive network impacts, and its targeting capabilities provide significant value to advertisers."
In a note, KeyBanc Capital Markets analyst Justin Patterson said a possible break from FB could take years given the technical complexity, adding:
"Instead, we think this will likely be resolved with another fine and additional investigation into future mergers and acquisitions."
Patterson has overweight rated the stock with a target price of $ 340.
Bottom Line
Following the recent weakness, Facebook's multiple has become more attractive and even lower than other companies, such as Walmart (NYSE 🙂 or Coca-Cola (NYSE :), suggesting that there is already a fair amount of regulatory risk in the stock. is built-in. As this sell-off accelerates, we see FB shares becoming an attractive buy for 2021, given the platform's powerful ad appeal and duoply status in the digital ad market with Google.
