There may be some very good reasons to be buying Facebook (Quote, Chart NASDAQ:FB) right now, says Lorne Steinberg, starting with the fact that it’s clearly a well-run, immensely profitable company.
But from regulatory and privacy issues that won’t go away to declining growth in its user base and increased competition, the social media giant’s troubles are just getting started, the portfolio manager says.
Facebook’s share price dropped again in trading on Wednesday, putting the stock now over 20 per cent off its recent all-time high set in late July and down over five per cent for the year. During the past month and a half, the stock has been blasted by a poorly received earnings report and a tepid guidance, while the company’s executive continues to face scrutiny over privacy and rights-based concerns.
Testifying before US Congress’s House Energy and Commerce Committee today is Facebook COO Sheryl Sandberg who is being questioned along with Twitter chief Jack Dorsey on the topic of moderating online content, one issue that’s been raised being the illegal sale of opioids on both social media platforms.
And while the ball seems to be in Facebook’s court in terms of how it plans to address its shortcomings — CEO Mark Zuckerberg has promised to dedicate the current year to “fixing Facebook” — its content regulation woes are only part of the problem, says Steinberg, who is president of Lorne Steinberg Wealth Management.
“For the regulatory side, things are only going to get tougher because people are getting smarter and more careful,” says Steinberg to BNN Bloomberg. “I will say that we’re seeing trends in younger teenagers who aren’t even using Facebook at the present time. They’re using other things — some of which Facebook might benefit from, like Instagram — but the space will probably get more crowded.”
“Certainly, user growth has matured quite a bit and there’s a limit to where this is going to go,” he says.
A measure of the shifting attitudes towards social media has been captured in a new study by the Pew Research Center which found that a full 74 per cent of Facebook users have taken steps over the past year to reframe their relationship with the platform, some by adjusting their privacy settings, some by taking a break from checking the platform and others by deleting the app from their smartphones.
The study also noted that 44 per cent of people aged 18 to 29 deleted the app from their phone versus only 12 per cent of Facebook users over the age of 65, while 64 per cent of the younger group adjusted their privacy settings compared to only a third of those over 65.
Steinberg says that more pain for Facebook shareholders may be coming in its next quarterly report due in October.
“We’re not going to buy this stock here, but again, if Facebook has earnings below expectations a penny or two, you could see another ten to 15 per cent drop in share price,” he says. “It’s really priced for significant earnings growth.”