The company may be in the news these days for a bunch of interesting reasons but the stock is definitely something you want to own, says Paul Harris on Facebook (Facebook Stock Quote, Charts, News, Analysts, Financials NASDAQ:FB).
“Everybody knows Facebook — it’s got three 3 billion-plus users. I think that the large amount of data that they collect is very valuable not only for advertising but for content,” says Harris, partner at Harris Douglas Asset Management, speaking on BNN Bloomberg on Thursday.
Facebook’s share price had a not too good month of September, with the stock losing ten per cent of its value. But overall, it’s still been an up year for FB, sitting year-to-date up 24 per cent and coming off a 2020 where the stock returned 33 per cent.
That may not be much in comparison with some of the company’s FAANG friends which saw outsized gains last year and, as exemplified by Google parent company Alphabet, are up over 50 per cent for 2021.
And like Google, Facebook is dealing with attacks of the regulatory and legal kind, where governments and groups worldwide are attempting ways of pushing the companies away from their virtual monopolies in the online advertising space: its ubiquitous search engine in Google’s case and its various social media platforms in the case of Facebook.
Facebook is again playing defence without hockey skates in answering questions this week from a US Senate committee on its photo sharing site Instagram. Through leaked internal documents, it has come to light that Facebook conducted research on Instagram’s impact on teen boys and girls, finding the social media platform to harmful to mental health and body-image, with the company only recently putting on pause its launch of an Instagram for children under the age of 13.
“We care deeply about the safety and security of the people on our platform,” said Antigone Davis, Facebook’s head of global safety, in response to questioning in front of a Senate commerce subcommittee on Thursday. “We take the issue very seriously.… We have put in place multiple protections to create safe and age-appropriate experiences for people between the ages of 13 and 17.”
And from another direction, Australia’s pushback against social media has recently been kicked up a notch with a court ruling that online publishers are legally responsible for comments posted on their articles, a decision that has caused news giant CNN to shut Australians out of access to its Facebook pages. The court ruling comes after Australia earlier this year started forcing social media companies to pay for links on their sites to news organizations.
But while Facebook remains the perennial target for a number of wider concerns, the company itself remains in great shape, according to Harris, who points to the incredible potential still untapped in some of Facebook’s assets.
“I think Facebook is undervalued in the sense that they’ve not monetized WhatsApp or Instagram enough. I think they can really monetize those two things,” Harris said. “I understand there are lots of regulatory issues around Facebook but I think they’ve dealt with many of those things.”
“This is a company that has a plus-50 per cent EBIT margin, it’s not trading at large multiple and I think it’s a great opportunity to buy the company,” he said.
“Advertising is moving online. It’s not on print anymore, or in a very limited way, and I think Facebook totally benefits, along with Alphabet,” Harris said.
Facebook continues to grow its top and bottom lines at a fast pace. Last year, the company registered $28.072 billion in revenue, which was up 33 per cent from the previous year, while net income hit $11.219 billion, up a huge 53 per cent. EPS for the year was $3.88 per share compared to $2.56 per share for 2019. (All figures in US dollars.)
Facebook’s ability to monetize has been clearly on display in recent quarter, including its most recent, the company’s Q2 delivered in July. There, daily active users were 1.91 billion for the month of June, up just seven per cent from a year earlier, yet revenue was up 56 per cent year-over-year to $29.077 billion and net income was up 101 per cent to $10.394 billion or $3.61 per share.
“In the third and fourth quarters of 2021, we expect year-over-year total revenue growth rates to decelerate significantly on a sequential basis as we lap periods of increasingly strong growth. When viewing growth on a two-year basis to exclude the impacts from lapping the COVID-19 recovery, we expect year-over-two-year total revenue growth to decelerate modestly in the second half of 2021 compared to the second quarter growth rate,” said Facebook in its second quarter press release.
“We continue to expect increased ad targeting headwinds in 2021 from regulatory and platform changes, notably the recent iOS updates, which we expect to have a greater impact in the third quarter compared to the second quarter. This is factored into our outlook,” the company said.