Facebook (Facebook Stock Quote, Chart NASDAQ:FB) is rounding the final turn on a year to forget for the social media giant whose share price is now down 18 per cent for the year. But the company has too many pluses going for it to remain in the doghouse for much longer, says Greg Newman of Scotia Wealth, who predicts a turnaround on the horizon.
All eyes will be on Facebook’s third quarter earnings due tomorrow, with investors hoping there won’t be a repeat of the Q2 report in late July, which featured weaker-than-expected revenue and a projected slowdown in growth over the second half of the year. That report was greeted by the largest one-day decline in US market history with more than $123 billion in value erased from the stock practically overnight. (All figures in US dollars.)
The stock’s poor performance this year has been linked to a number of wider issues impacting the company, from data breaches and election influencing scandals to impending regulation and concerns over the loss of key management players — all issues which appear to brook no easy resolution.
“When will they be let out of the doghouse, that’s a good question,” says Newman, director and portfolio manager at Scotia Wealth, to BNN Bloomberg. “I don’t think it’s going to be that long. They guided down last quarter and they’re probably sandbagging their numbers a little bit. Even with those guided numbers, we’re still modelling 25 per cent earnings per share growth and trading at 17 times 2020 [earnings].”
Newman says that to get a sense of the company’s potential, investors only have to look at Facebook’s unmatched global user numbers.
“They’ve got about one-third of the planet as clients that they can monetize on,” he says. “It’s almost becoming a staple in people’s relationships and interaction.”
For its third quarter, analysts are expecting Facebook to report revenue of $13.8 billion, a 34 per cent year-over-year increase, along with an operating profit of $5.79 billion. The company’s monthly active users are estimated to rise to 2.28 billion for Q3, up from 2.23 billion last quarter.
“I wouldn’t be afraid to be owning this name now,” Newman says. “If it’s at $146-147 and it dances down to $140, $130 even, I think that you can lose, it’s possible, but the odds are that you’re going to be fine in the next three to six months.”