Facebook Stock Has Resilience
There are plenty of reasons to dislike Facebook, Inc. (NASDAQ:FB). From the company’s preternaturally unlikable founder Mark Zuckerberg, to its famously poor data protection, to its controversial ad policies, people really don’t like Facebook, myself included.
But here’s the thing, I still use it. And, chances are, you do, too. And that’s the important thing to remember about FB stock: bad press will come and go, but Facebook has proven itself to be eternal.
Now, this is an important reminder as Facebook faces yet another slam in the media. This time it was brought on by critics claiming that Facebook has failed to sufficiently police hate speech and disinformation on its platform. This has spurred on a great migration of advertisers away from the company. (Source: “Zuckerberg Loses $7 Billion as Firms Boycott Facebook Ads,” Bloomberg, June 27, 2020.)
Chart courtesy of StockCharts.com
Unilever NV (NYSE:UN), one of the world’s largest advertisers, is the latest to abandon Facebook (for now) over the content row it’s facing.
Several other very valuable corporations are also pulling advertising dollars from Facebook, including Coca-Cola Co (NYSE:KO) and Verizon Communications Inc. (NYSE:VZ). All told, Facebook stock saw a loss of $56.0 billion in value as it dropped about 10% following the recent spate of advertisers leaving.
Zuckerberg saw his personal wealth fall so much that he’s now only the fourth- richest person in the world (I know, try to hold your tears back).
So yes, things look bad right now for FB stock. But that’s the thing about Facebook, Inc.: we’ve been here before.
Back in 2016, heading into 2017, the unthinkable happened: Donald Trump defeated Hillary Clinton to become president of the United States. Many in the Democratic Party were eager to find someone to blame, with Facebook proving an easy target. After all, the company already went through a number of PR disasters (heck, there’s even an Oscar-winning movie about just how crummy Zuckerberg is).
Things only got worse when the Cambridge Analytica scandal broke, whereby Facebook users’ data was harvested by Cambridge Analytica to be mainly used in targeted political advertising.
This triggered Zuckerberg appearing before Congress to testify regarding the breach, which served to further cement his status as perhaps the most disliked industrialist in America.
Now we’re back with another round of media and consumer hand-wringing over Facebook and how it’s going to “rig” the election again. Naturally, considering the current political and social climate in the U.S.—coupled with the COVID-19 pandemic—companies would rather play it safe than sorry. And that’s why we’re seeing this mass exodus of companies away from advertising on Facebook.
While it’s going to hurt in the short run, Facebook stock has bounced back before and will likely bounce back again. This time around, there’s nothing as scandalous as a massive data breach or an unprecedented event like the election of Trump (even if he wins again, it won’t have nearly the same impact or surprise as it did in 2016).
So what this means is that I anticipate a faster-than-normal recovery from FB stock’s current slump. Even if a few more advertisers jump ship between now and the election, my view is that this will pass rather quickly and that Facebook stock will be back to it’s winning ways sooner than later. After all, it has recovered every other time that momentum seemed to build against it.
Why FB Stock Is a Smart Pick During COVID-19
As I said earlier, Facebook, Inc. is far from my favorite company. If you want to take a moral stand against a company that routinely finds itself mired in controversy and scandal, feel free. But if you don’t mind all that baggage, Facebook stock is actually a very smart option right now.
FB stock is on a fairly strong upward surge following its 2020 nadir (brought on by the COVID-19 economic downturn).
Up 16% on the year and up 44% over the past three, Facebook stock has proven to be a very reliable blue-chip stock that still contains within it opportunity for large growth—as well as stability during more volatile moments on the market.
The COVID-19 pandemic had already played a part in slowing FB stock’s ad business, as many businesses shut down and hardly needed advertising during that time.
Despite that, Facebook, Inc. was able to beat Wall Street revenue expectations in its first quarter of 2020 earnings report, hitting $17.7 billion in revenue. The company’s earnings per share, however, fell short of expectations, at $1.71. (Source: “Facebook stock spikes despite ‘significant reduction’ in demand for ads,” TechCrunch, April 29, 2020.)
Monthly active users hit 2.6 billion during the first quarter, continuing to solidify Facebook’s status as the largest social media company on the planet.
The quarterly report, even with the COVID-19 difficulties, helped propel FB stock by 10% when it was released.
A Facebook statement released alongside the report said that there was “a significant reduction in the demand for advertising, as well as a related decline in the pricing of our ads, over the last three weeks of the first quarter of 2020.” (Source: Ibid.)
So while Facebook stock is going through uncertain times (like every other stock on the market), it has proven that it can recover quickly and fiercely when it’s down. That makes FB stock one of the safer and more solid stocks around.
The fact of the matter is that Facebook is going to get in trouble again, at least as far as the media is concerned. You can almost set your watch to Facebook outrage these days. But the other fact is that it probably won’t matter much for Facebook stock.
In other words, goodwill or ill, Facebook, Inc. has proven to be a tenacious company that is hard to slow. In fact, it only continues to swell globally in both users and revenue.
As such, especially during these trying economic times, FB stock is one of the safer picks available on the market, while providing ample opportunity for growth.