Facebook is still a juggernaut of a stock, this fund manager says

All eyes will be watching quarterly earnings due Wednesday from Facebook (Facebook Stock Quote, Chart NASDAQ:FB), which are expected to involve a drop in profit as the social media giant grapples with ongoing privacy and fake news issues.

But investors need to look beyond the headlines to get a good handle on the stock, says Gordon Reid of Goodreid Investment Counsel, who argues that Facebook’s fundamentals are solid.

Facebook is set to report its first quarter 2019 financials after market close on Wednesday, with analysts expecting both a decline in revenue growth and a profit decrease to $4.7 billion in comparison to 2018’s Q4 profit of almost $5 billion. (All figures in US dollars.)

Like a number of its big tech peers, Facebook’s share price has had a remarkable run so far in 2019, rising 38 per cent year-to-date. The stock is still off its all-time high set last July, which came right before a massive selloff as investors reacted poorly to a quarterly report indicating a slowdown in user growth. The stock continued to slide over the latter half of 2018 and only began turning things around in late December.

Reid says that while privacy concerns will continue to dog the company going forward, there’s no doubting Facebook’s revenue-generating prowess.

“They’re in the news, and if you only listened to the news and didn’t analyze the company you’d think that this is a company on hard times,” says Reid, president and CEO at Goodreid, to BNN Bloomberg on Monday. “[But] last year in a year of negative news stream, they grew revenues by 35 per cent. This quarter we’re expecting year-over-year revenue growth of 36 per cent.”

“2.3 billion monthly active users, well over a billion daily active users — if you talk to advertisers, and I’m one, they’ll tell you that this is a great advertising model, and they’re going to continue with it,” he says.

Facebook last reported earnings on January 30, coming in with revenue of $16.91 billion, a 30.4-per-cent growth rate, versus the consensus estimate of $16.39 billion, and earnings of $2.38 per share, a 65-per-cent growth rate, versus the consensus forecast of $2.19 per share. The company’s share price shot up 11 per cent on the quarterly release.

Reid says that privacy issues in the age of social media are bigger than Facebook, yet the company is doing what it can to tackle the problem.

“There’s no question that there are elements of truth in these arguments about [Facebook’s] lax privacy policies,” Reid says. “I think they’re trying to address it. It’s a very, very big issue. It’s also a new issue, one that no one has navigated before.”

“We’re all new to the social world of how much information is too much information, should I be shocked by that, do I care about that — all that is to be answered,” he says. “I have no doubt that while we won’t get it perfectly right, we’ll be more right a few years from now than we are today.”