In the year 2020, people hated Facebook the most in the category of tech companies. Numerous groups pilloried it for its failure to prevent the spread of violent content, hate speech, and fake news. Due to these missteps, there was a sparking advertising boycott amongst people against Facebook in 2020.
Congress criticized and questioned the CEO of the company, Mark Zuckerberg. Attorney general of 46 states, FTC, i.e., Federal Trade Commission, sued the company recently for its anticompetitive practices. They were probably ready to force Facebook to divest the subsidiaries that it owned. With the latest iOS update of Apple, it can be more challenging for Facebook and other similar advertisers to collect user data.
But even after all this chaos surrounding the company and the slowdown caused by the Covid pandemic in the sales by ads, Facebook continues to march on. There was an increase of 17% in its revenue in the first nine months of last year, and the net income increased by 61%. Its stock price has also risen by 33% in the previous year.
According to analysts, it is expected that the revenue of Facebook would grow by 19%, and its earnings would increase by 45% in the year 2021. In the coming year, it is expected that the revenue would grow by 24% while the payments would increase by 12%. This seems like a robust growth rate for the stock of Facebook, which trades at a minimum grade of forwarding earnings that are 25 times.
What is the worth of Facebook’s stock?
According to the market data obtained from S&P, the market capitalization of a Facebook stock is around $764 billion, making it the 5th most valuable company globally on the S&P 500 index. The leading companies are Microsoft, Apple, Alphabet, and Amazon. On Aug. 26, 2020, the company reached a stock value of $303.91, which is considered its all-time highest closing price for the Facebook stock. This was even though the user engagement daily declined after the earlier spike that came after the pandemic.
The opening value for FB stock was recent $268.74, and the average value for it in the last 52 weeks was around $233.79. These values prove that FB company stocks’ value is still relatively high even after the global recession due to the pandemic.
Threats to the stock value of Facebook:
In the past year, on Dec. 9, there were antitrust lawsuits filed by 48 territories and states and the federal government against the company. After these lawsuits, there were chances that Facebook might have to unwind the deals regarding WhatsApp and Instagram’s purchase. Due to these suits, the stock value of FB dropped by around 2%. To make it further worse, Facebook has now planned to break its business deals with Apple because of conflict over privacy issues that can hurt the golden goose that helps it in advertising.
There are numerous near-term challenges present for the company still. Still, three primary and significant catalysts should not be overlooked by investors, which can lift the stock of Facebook even higher in coming years.
1. Accelerating sales of ads: in the digital market of advertising, Facebook holds the second position after Google in numerous countries, including the USA. This position makes it difficult for marketing executives and businesses to ignore the power of Facebook that connects businesses with more than 3.2 billion people that are active every month on apps owned by Facebook, i.e., Instagram, Facebook Messenger, and WhatsApp.
This makes the ad boycotts that became common in the year 2020 to be highly symbolic and temporary. These boycotts easily weathered out the slowdown that came in ad spending as a result of the pandemic. The ad revenue of Facebook grew around 16% in the first nine months year over year in 2020, and this was relatively faster as compared to the ad revenue of Google, which increased by just 4% in the same period year over year.
This indicates that the ad growth on Facebook would accelerate further in the year 2021 as the scenario of pandemic changes and advertisers’ purse strings become loose. The revenue estimates are shown by Wall Street already show this recovery, which will continue when the family of apps launched by Facebook continues to attract more users globally.
2. Pulling back curtains of Instagram: Instagram is the business of Facebook, growing at the fastest pace. But the actual metrics of its business growth are generally not disclosed. Over a month, the active users on this platform doubled up from 500 million to one billion between 2016 and 2018. But this figure was not updated after this.
In the year 2019, it is reported by Bloomberg that Instagram generated advertising revenue of $20 billion. This is around 28% of the total sales of Facebook. This is more than the ad revenue generated by YouTube, i.e., 15.1 billion dollars in 2019. In the year 2017, the ad revenue generated by Instagram was around $3.6 billion only.
If Facebook pulls back the curtains and reveals the actual growth rates of Instagram like Google did for YouTube this year, it will surely attract other bulls. This will give the investors a clear idea about the growth potential of Instagram as a social online commerce platform with posts that can generate sales and use them against Snap and TikTok that are challengers of Gen-Z orientation.
These reports can also make way for Instagram’s spin-off in an IPO that can appease regulators to provide investors of Facebook with Instagram’s new shares and further increase the growth potential of Instagram as a company that operates independently.
3. The market of virtual reality: ideally speaking, 99% of the revenue obtained by Facebook is via ads, but another business of the company which is growing gradually because of its brisk sales is the Oculus VR Headsets. These headsets do not need a phone or PC and are well accepted by the market, and it is a stand-alone product in the headset market.
According to Super Data’s report, there were 705,000 headsets of Oculus Quest shipped by Facebook in the past year. There was a report by Nikkei in July 2020 that claimed that the production of Quest 2 headsets by Facebook had been ramped up by 50% in 2021 to achieve almost 2 million shipments.
This high sales target indicates the growing ecosystem of Facebook’s VR games and VR content, attracting users. In May 2020, Facebook announced that over $100 million in sales were achieved in VR content in the past year for the Quest. This means that Quest owner purchased higher than $140 worth of scope for this device. This is like a drop of water in the pond for the company, but it indicates the VR platform’s foundations. The plan is to link the social networking users virtually in the upcoming future.
The VR and AR market globally can still expand at the compound annual increment rate of around 43% in 2020-30, according to the report of Research and Markets, and this secular trend will be quite beneficial for the business of Facebook.
There is just advertising on Facebook.
One of the main reasons for the fall of a business/brand is their negative image on the market. Similarly, Facebook also faced criticism by government and regulatory bodies. If Facebook falls, then the main reason would be the negative image and dependency on advertising revenue because as of now Facebook most of the profit is coming from advertising itself. The antitrust lawsuits could also become one of the causes of Facebook fall. But an expert is assuming that other catalysts will lift the stock of Facebook much higher in 2021.
If Facebook has not sold Instagram, then the investor would get more insights into the growth of Instagram as the social media platform. Additionally, Instagram is also gaining popularity as an e-commerce store. Currently, Instagram with Reels is doing their best to capture the already established market by Snapchat and TikTok.
Now let’s jump to virtual reality. Marketers and researchers predict that around the world the VR and AR market is expected to see an annual growth of 45% in the next decade. Facebook is all-set in the position of profiting from this trend. The all-new Oculus Quest VR headsets are established as independent devices and do not require a laptop or smartphone. Recently, the company also disclosed the sale of 100-million-dollar VR content, considering it a grassroots for the VR platform, which might link virtually to future users.
Facebook monopoly in the advertising market will remain the same. The company is a single silo for investors and advertisers. When we are coming out from the recession of pandemic now, advertisers have started spending more.
Very soon Facebook will bring some future revenue from the cryptocurrency sector as well. It is expected that Facebook will launch its Cryptocurrency sooner than as predicted. Recently, The Libra Association also renamed itself as Diem Association as well.
Experts’ investor’s views on Facebook.
Due to the negative image and antitrust lawsuits, experts are unsure about the investment and signaling the possibility of a breakup. They are confident in the future acquisitions of Facebook and predict that Facebook will get better!
Additionally, antitrust lawsuits are not new. It has taken three years for Microsoft to come out from the suit and do the settlement in the antitrust case against Google. The case was filed in October and is not expected to hit trails anytime sooner than 2023. As of now, the analyst did not have to worry about the breakup. Some Investopedia contributors say that Wall Street is sleeping just focusing on the ad revenue of Facebook and not on the growth of headwinds. Farley is predicting the very tough year 2021.
There are experts arguing on the potential breakup can be useful for the shareholders who will get the shares in separate entities. Investors will have access to the under-monetized, faster-growing Watsapp and Instagram. These are the two companies that could see a rise in 2021. There is no need to deal with Facebook, which is always in trouble with politics.
Analysts of Wall Street think that FANG stock can see growth and will provide value to the advertisers as well. Facebook also proved its worth in the unprecedented times of economic downturns. The store of Facebook has an excellent IBD composition rate, which is 94. This is making it very dangerous to potentially bet against the supply of Facebook as it is facing the long battle of antitrust. Investors who went on with Facebook are waiting for Facebook to reach a good buying point and demonstrate its resilience.
At the end is whether you are bearish or bullish, it is not a good time to buy the stock of Facebook. In case you have already made an exchange, then all you need to do is sit tight for a long time.
It is not advisable to sell your shares on Facebook. But it is your personal decision, anyway. This company might be the critics’ favorite punching bag, but the core business is quite sturdy and will remain so for the upcoming few years. This company remained resilient even during the pandemic that was a significant downturn for this year globally. New catalysts can lift the shares of the company to other heights in the coming years.