Facebook Facing Obstacles, but Investors Undeterred

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Facebook stock has spent most of this year so far trending upward. In recent days it’s been backtracking a bit, perhaps discovering a more appropriate standard price level. The company saw its lowest adjusted closing price for the year back on January 14, at $245.64 per share. It’s been tracking mainly upward ever since, with some small dips along the way. It hit its highest adjusted closing price for the year back on September 7, coming in at $382.18. After September 7, however, the stock started trending downward, retracing to levels seen back in May.

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Yesterday was indeed a rough patch for Facebook, which added to a generally downward direction. A report on “60 Minutes” Sunday night, featuring a former Facebook employee turned whistleblower, certainly didn’t help matters. The Sunday night report featured Frances Haugen, who detailed how the company knew about the problems its operations posed. The impact of Instagram’s product on teenage girls was strong on that list, reports note. Haugen then testified before a Senate hearing yesterday, to further discuss the matter.

Bad news enough for anyone to have a Senate committee investigating you. It’s worse to have it come immediately following a six-hour outage. A Marketwatch report suggested that the outage cost the company about $164,000 per minute in lost revenue. That worked out to about $40 billion from its market cap, and a $6 billion loss to Mark Zuckerberg himself.

Wall Street’s Take

Wall Street consensus analysis, however, calls Facebook a Strong Buy. Out of the 31 analysts that have offered 12-month price targets on the company in the last three months, fully 25 call Facebook a Buy. Another five, meanwhile, take a more cautious view, calling it a Hold instead. The last holdout is the only Sell on the board. Facebook has enjoyed a Strong Buy rating since October of last year.

The average Facebook price target occupies a comparatively broad range, with $200 separating the high target from the low. The current average price target is $419.87 per share, with a high target of $500 and a low of $300. With Facebook last seen trading at $332.96, that represents an upside potential of around 22.1%.

Still One of the Best at What it Does

It’s hard to be bearish on Facebook, especially in the short-term. While it’s not the first social media firm, it’s one of the longest-lasting. This is especially true after MySpace was relegated to cultural irrelevancy, back around 2010. To this day, Facebook is a useful and often necessary component in many companies’ marketing operations.

For small businesses, this is particularly true; how many small pizzerias do you know of that don’t have a menu on Facebook? Mom-and-pop diners, flower shops, and most everything else turns to Facebook to show hours of operation and some products. Granted, Facebook has lost a lot of ground with the younger users to SnapChat (SNAP), TikTok, and a panoply of others. However, it’s still widely used among Gen X as well as some older millennials. That puts it in a fairly solid position right now.

Facebook may never be able to reclaim its killer-app status among younger users. Its status with the older users, however, should give it at least some leverage going forward.

Concluding Views

Facebook still has quite a substantial user base behind it, and total numbers of monthly active users have been growing at a fairly stable pace since 2008. Additionally, it remains the largest social media operation around, according to Statista findings. Facebook has a massive audience and has figured out multiple ways to monetize this audience.

Essentially, Facebook will be a popular point on the Internet while the Internet as we know it is in play. The population it’s appealing to right now is likely to keep right on using it until it dies. That ensures a pretty solid line of business for at least the next 20 to 30 years, unless there’s some type of large-scale catastrophe that steps in, which is unlikely. Furthermore, one new innovation might be enough to help it recapture the youth market and stage a new leg up.

The time for explosive growth from Facebook has likely passed. Furthermore, the fact that Facebook offers no dividend doesn’t help it much as an income stock. Nonetheless, for a safe purchase that should see slow appreciation over several years, Facebook may be the way to go.

Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.

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