The shares of Facebook (NASDAQ 🙂 have increased enormously this year, indicating that investors are convinced that the social media giant has successfully overcome the big challenges and is now well on its way to further growth.
The share has indeed risen more than 50% to date and is currently trading near the highest point ever of $ 211.50, defying regulatory probes, fines and general public distrust of the platform. Shares closed yesterday's session at $ 198.82, after falling 0.4%.
The biggest surprise in Facebook's performance in 2019 is not only that the company regained lost ground, but also that it outperformed significantly its biggest rival Google, owned by Alphabet (NASDAQ :), whose stock in the same period 25% has increased period.
Weekly price chart on Facebook
This strong revival comes after a tumultuous 2018 when investors' confidence in the company was shaken heavily by a series of controversial setbacks, including data breaches, concerns about user privacy and political manipulation of the platform.
Although Facebook's problems are far from over, with CEO Mark Zuckerberg warning of a "difficult year", the company remains resilient. For the third quarter that ended on September 30, Facebook reported that new users are still flocking to its apps, with 2.8 billion people now using at least one of its services every month.
In the quarter, Facebook added three million users in the US and Canada – the largest number of consecutive additions since well before last year's Cambridge Analytica scandal. That increase in consumer involvement increased both sales and operating margins and the reported $ 17.7 billion in total revenue and $ 6.1 billion profit exceeded both analyst estimates.
Costs of stricter regulations
So what is the future for 2020, a US presidential election, because demands are escalating that the influence of social media on voters is limited and advertisements aimed at certain groups are banned?
Such pressure and more intensive control after the US elections are some of the risks that analysts emphasize for Facebook shares as the new year approaches. Facebook is struggling with & # 39; a tornado of privacy, security and regulatory issues & # 39; and the & # 39; costs of stricter regulations are getting underway & # 39 ;, according to a recent research note from Societe Generale. The note also said that Facebook's "crucial" capital expenditure directive reflects the company's higher exposure to privacy and security issues.
Societe Generale is one of only two companies on Wall Street that recommend selling Facebook shares, with a 12-month price target of $ 120 per share. Forty-seven companies recommend buying the shares, while five analysts have the equivalent of a neutral rating.
In our opinion, Facebook has already shown that it could be a winner in this battle between slowing growth and the need to spend more to satisfy regulators. Despite almost constant negative news, the social media giant has still managed to grow advertising revenue by more than 25% every quarter.
From now on there is no guarantee that the problems that will solve the world's largest social media platform will disappear. At the last telephone meeting with analysts in October, the company's finance director warned that Facebook's slowdown in revenue growth could extend this year, because growing restrictions on the amount of personal information it can collect and use for advertising make it difficult to to profit from growth in advertising sales.
Regulatory supervision and antitrust probes will continue to ask questions about the future growth of social media companies while politicians and regulators try to put together a set of rules to control and combat abuse. But when it comes to Facebook, investors are becoming more and more confident of Zuckerberg's ability to produce market-based returns, while downplaying the company's conservative tone.
What makes investors enthusiastic about Facebook's prospects is the ability to continue to attract advertising dollars with its 2.8 billion users on different platforms. An important area for growth are the company's Stories functions, full screen photos and videos that users can post on Facebook, Instagram, WhatsApp and Messenger.
Facebook & # 39; s switch to e-commerce via Instagram and WhatsApp could add billions of dollars to its revenue within a few years. The Instagram photo sharing app, with ads in the photo feed and recently added e-commerce tools, is becoming an increasingly important part of the business.
Bottom Line
After a powerful rally this year, Facebook shares are well positioned to withstand new setbacks in 2020. FB & # 39; s continued ability to boost engagement and generate income from its existing characteristics makes its shares a solid long-term bet despite the challenging year ahead. We recommend buying this share for any possible weakness in 2020.
