What goes up must come down, but that does not seem to be the case with Facebook Inc (NASDAQ:FB), whose stock appears to be in a perpetual state of ascension. But can Facebook stock defy the law of gravity forever, or are there hints that all is not well in Mark Zuckerberg’s digital empire?
Any Cracks in the Walls for FB Stock?
Not unlike other dominating companies, Facebook stock has no shortage of problems and bad press. Most recently, the destruction of a Facebook-financed satellite (intended to expand Internet access in Africa) during a rocket explosion, and news that the social media site was intentionally skewing trending news headlines to downplay pro-conservative stories, provided the company’s public relations specialists with significant sorrow.
But Facebook is the rare company for which bad news doesn’t create deleterious residue, and for which its corporate chieftain continues to generate goodwill. Recently in the news was a story that Zuckerberg sold $300.0 million in FB stock as part of his pledge to philanthropically jettison all of his Facebook shares during his lifetime. (Source: “Facebook Inc’s Zuckerberg Sold $300M In FB Stock,” InvestorPlace, September 14, 2016.)
Of course, Zuckerberg is not ready to give away all of his FB stock holdings right away—he still owns around 400 million shares of his company’s stock—but the question of that FB stock might create some uncomfortable questions for Zuckerberg if his public benevolence is overshadowed by boardroom machinations.
At the moment, a group of Facebook stock shareholders are in court challenging the company’s effort to create a new class of non-voting shares, known as “Class C” stock. Currently, stockholders with Facebook’s “Class A” shares are entitled to one vote per share, while “Class B” stockholders have 10 votes per share. Not surprisingly, Zuckerberg retains the majority of Class B stock, with more than 60% of total voting power for the company.
The Facebook stock shareholders’ lawsuit insists that the Facebook directors intentionally breached their fiduciary duties by recommending the introduction of new Class C shares, which they say will enable Zuckerberg to monetize a large portion of his stock without fearing loss of corporate control. The shareholders are also accusing the company of withholding and redacting information relating to the decision to start the Class C stock. (Source: “Facebook Investors Seek Privileged Data in Stock Suit,” Bloomberg BNA, September 8, 2016.)
While the shareholders’ lawsuit has yet to attract any great degree of public attention, other visible signs are pointing to a less-than-perfect picture. Most notably, the company’s “Messenger,” “WhatsApp,” and “Oculus” subsidiaries have yet to be monetized. Although this has yet to dent Facebook’s viability, it is clearly a trend that needs to be reversed with some degree of speed. The lack of profits from Messenger is particularly bothersome, as the company has been focusing very heavily on its potential, but Facebook Vice President of Messaging Products David Marcus is glumly acknowledging that Messenger will contribute with an insignificant revenue trickle for the near future.
And even good Facebook stock news can be a bit opaque: Facebook’s most profitable subsidiary is “Instagram,” with over 200,000 advertisers, but the company has been intentionally vague on the depth of its revenue power. (Source: “Facebook (FB) Working on Monetizing Strategy for Messenger,” Zacks Equity Research, September 13, 2016.)
Shades of Doubt in FB Stock
There are a small but vocal number of individuals who are wondering if FB stock is on the road to new potholes. InvestorPlace contributor Lawrence Meyers recently highlighted the flattening in active monthly users of the social media site and its declining dominance in social network advertising. Facebook is now holding a 69.7% market share, down from 72.3% two years ago, and that’s with a 68% year-over-year ad revenue growth in the second quarter of this year. (Source: “Facebook Inc (FB) Stock: How High Will It Go?,” ValueWalk, September 5, 2016).
Also taking a gloomy view is Citron Research chief Andrew Left, who used an appearance on CNBC’s “Halftime Report” to proclaim that FB stock will “become a tremendous short once engagement numbers slip.” He also noted that, while Facebook “blew out earnings, completely destroyed every estimate” with its second-quarter revenue report, the Facebook stock only upticked a relatively measly 1.5% to two percent on the day after. (Source: Ibid.).
And while Morgan Stanley (NYSE: MS) analyst Brian Nowak reiterated an “overweight rating” on FB stock earlier this month, he nonetheless admitted that some investors were concerned that a slowdown in Facebook’s ad growth could fuel a “material revenue deceleration” in the second half of the year. (“Facebook’s stock seen soaring despite ad load slowdown,” MarketWatch, September 7, 2016.)
The Takeaway Regarding Facebook Stock
While no one is seriously preparing an obituary for FB stock, there are some disturbing hints that Facebook Inc could be facing a headache or worse if its luck were to change. These problems do not appear to bother the majority of financial experts, and there is no shortage of chatter about how FB stock could reach new heights before New Year’s Eve. But, in the event that the company’s fortunes start to reverse, it would be inappropriate to not be cognizant that some writing—no matter how faint—can be spied on Facebook’s wall.