Facebook’s stock is “too much noise” to own, this investor says

Facebook (Facebook Stock Quote, Chart, News NASDAQ:FB) may have rocked it in its latest quarterly earnings but Facebook’s stock is still a mess of unanswered questions.

So says Don Lato of Padlock Investment Management, who advises investors to stay away.

Facebook’s share price was on the rise in early-day trading on Thursday as the market reacted to third-quarter earnings delivered by the social media giant after market close on Wednesday.

Facebook beat analysts’ consensus estimates for both earnings and revenue, coming in with EPS of $2.12 per share compared to the expected $1.91 per share on revenue of $17.65 billion compared to the expected $17.37 billion.

“We had a good quarter and our community and business continue to grow,” said Facebook CEO Mark Zuckerberg in a statement. “We are focused on making progress on major social issues and building new experiences that improve people’s lives around the world.”

Revenue was up 29 per cent year-over-year, while the company reported 2.8 billion monthly users on its various platforms, up a fraction from the second quarter. Even in the saturated market of the US and Canada, Facebook saw user growth from 187 million to 189 million.

Looking ahead, the company says that revenue growth will slow by a mid-to-high single digit percentage, with that decrease becoming less pronounced over 2020.

Facebook’s stock is up 44 per cent this year…

Like the rest of the FAANG group of tech stocks, Facebook has been having trouble returning to highs set in the summer of 2018, although the stock is up 44 per cent year-to-date. Although the FAANGs are all dealing with their own demons, the ongoing trade war between the US and China as well as antitrust concerns have been dogging a number of the tech giants.

That includes Facebook, which yesterday agreed to pay $643,000 to the United Kingdom’s Information Commissioner’s Office for its role in the Cambridge Analytica scandal which saw users’ personal information being harvested without permission and used by third-party companies in connection with a number of elections around the world, including the 2016 US election.

While Facebook did not admit to liability under the terms of the agreement, the fine is another in a lengthy list of events which cast a cloud over the company. Yesterday, Twitter CEO Jack Dorsey said his company would be banning all political advertising, saying that political messages need “to be earned, not bought,” a move that in turn shines a light on Facebook CEO Mark Zuckerberg, who has been adamant — even in the face of criticism from within his own company — that political ads, even false ones, be allowed on the platform.

Add to those issues ongoing investigations by the US Department of Justice and claims by Democratic candidate Senator Elizabeth Warren that Facebook should be broken up, and you get a lot of drama for one company.

Lato says too much drama.

“I would be avoiding Facebook,” says Lato, president of Padlock Investment, speaking to BNN Bloomberg on Wednesday. “I owned the stock a couple of years ago and I sold out probably about this time last year. There’s just too much noise here and too many accusations about how the company is operating its business and some questions about management’s integrity here.”

“The multiple is not bad, it’s about 20x next year’s earnings which is in line with where it’s been the past couple of years and down from the very high multiples when it first came out,” he says. “I would just avoid the stock because there’s too much noise surrounding it.”

In the conference call for the quarterly earnings, Zuckerberg defended Facebook’s policy of allowing political ads regardless of their veracity, saying that his company is defending the right to free speech.

“Some people accuse us of allowing the speech because they think that all we care about is making money, and that’s wrong,” Zuckerberg said.