What to Expect from Facebook Stock (FB)
Shares of Facebook Inc (NASDAQ:FB) have been under siege for the last three months. The company lost almost 10% of its market value as investors sold off Facebook stock (FB stock).
But there’s finally a light at the end of the tunnel. Facebook appears to have fixed many of the issues that plagued the FB stock share price, so a rebound is clearly on the horizon.
In other words, FB stock is trading at a discount, at least for the time being.
There are plenty of analysts who disagree with me. They believe that the recent problems could have long-term impacts on Facebook stock, but I don’t think there’s enough evidence to support that case. Nonetheless, let’s review their arguments to make sure I didn’t miss anything.
Insofar as I can see, there are two main lines of attack on FB stock:
- Facebook’s advertising metrics were faulty, which means it overstated the effectiveness of some ad campaigns. As a result, advertisers will redirect their dollars elsewhere, thus eroding Facebook’s revenue base and crushing FB stock.
- The fake news scandal turned Facebook into a political football. Over time, this will drive users to other social networks, which will dry up the advertising dollars. And no ad money equals no more gains for FB stock.
Both of these are stumbling blocks on Facebook stock’s path to higher levels, but they also aren’t as bad as they seem.
For instance, the faulty ad metrics didn’t just overstate some numbers—it also understated other figures. Facebook fixed the problem by tweaking its measurement techniques, and by inviting third-party audits. These third-party audits are why people are freaking out. (Source: “Facebook ads are ‘far less viewable’ than some advertisers were expecting,” Business Insider, December 28, 2016.)
Some of the auditors, like Integral Ad Science, Inc, have found that people are skipping past Facebook ads more quickly than we previously believed. At first blush, this sounds devastating for FB stock, because advertisers could “redirect their money to other places.”
But what other online venues exist on the same scale as Facebook?
There’s “Google,” owned by Alphabet Inc (NASDAQ:GOOG), but Google isn’t a social network. On the list of most popular social networks, Facebook owns four of the top five. Just take a look at this chart:
Chart courtesy of TheAtlas.com
Facebook owns “Messenger,” WhatsApp Inc., and Instagram. It has complete leverage over publishers and advertisers, so there’s no reason to panic over a few faulty metrics. The consequences will be minor.
However, the fake news problem is tougher to solve. Facebook is testing a new system wherein users can flag stories they think are false. Third-party fact checkers will then double check the story and make a final judgement call. It’s not 100% settled yet, but the company has taken action. It is making a visible effort to curb the rise of fake news, which should be enough.
Besides, every other social network will have a similar problem. That’s part of the problem with user-generated content in general; it’s not a Facebook-specific problem. In any case, there’s no reason to think this scandal can take down FB stock, because users will likely spend more time on Instagram or Messenger as a result.
Bottom Line on Facebook Stock
The bottom line is that Facebook is on the mend. Its emergency triage to the problems outlined above should start to pay off in the front half of 2017, meaning that Facebook stock could soar to record highs by early summer.