There may be a lot of doubters out there when it comes to Facebook, but even with its share price shooting back into the mid-$180.00 US range, it’s still cheaper than it ever was, says Teal Linde, manager at Linde Equity Fund, who argues that the stock’s price multiple has never looked better.
As a card-carrying member of the FAANG group of tech stocks, Facebook’s share price has been on a steady rise over the past couple of years, hitting a new high of $193 in early February. But the stock also has its detractors, many of whom point to signs that FB’s tech moment in the sun may be nearing its end.
In January’s earnings report, Facebook beat analysts’ expectations by coming in with $12.97 billion (US) in revenue compared to an expected $12.55 billion and with an earnings per share of $2.21 versus the $1.95 consensus.
But those numbers were only part of the story, as the company also announced that daily active users in the United States and Canada had, for the first time, declined in number.
Worldwide, the company saw 50 million fewer hours per day of viewership, and experts say that a demographic shift is partly to blame, with millennials and those under the age of 25 foregoing Facebook and heading to other forms of social media like Snapchat and Instagram (Facebook owns Instagram, but only generates a fraction of its revenue from the platform).
“The key thing is engagement and there are some worrying trends beginning to emerge,” says Neil Campling of Mirabaud Securities to CNBC. “In the last two years, they’ve really promoted video as the key platform, but if you look at engagement rates on video, they’re in decline. That doesn’t make sense.”
But Linde argues that what can’t be ignored is how Facebook’s dominant ad platform continues to rake in the money. “The revenues are expected to grow at 36 per cent this year and the earnings per share at 18 per cent,” says Linde in conversation with BNN. “And because revenues and earnings have been going up faster than the share price over the last few years, Facebook is now the cheapest it’s been since its IPO in terms of a forward multiple P/E basis.”
“Facebook is trading at 25 times forward earnings,” says Linde. “It hasn’t been this cheap since … ever, and even though the stock is at an all-time high it’s actually quite attractively priced today [at P/E 25x].”
Criticism of Facebook has moved in recent months from the issues surrounding fake news and Russian meddling in the 2016 US Presidential election to an increasing awareness of the potentially negative social and psychological consequences of social media.
In December, former Facebook VP of user growth Chamath Palihapitiya spoke out about the “tremendous guilt” he harbours as a result of Facebook’s influence on society, which he attributed to the “short-term, dopamine-driven feedback loops we’ve created” which are “ripping apart the social fabric.”