FB stock traded near a record high in Friday stock market action, holding above the $1-trillion mark after clearing that threshold on Monday’s rally sparked by a federal court tossing the Federal Trade Commission’s antitrust suit. The judge said the government had failed to offer any clear evidence that Facebook (FB) has a social networking monopoly.
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So are antitrust worries history? Not according to Argus analyst Joseph Bonner, who wrote in a Wednesday note that antitrust and regulatory concerns will “continue to hound” Facebook. Still, Bonner hiked his FB stock price target to 410 from 385, keeping a buy rating. He cited the “partial victory” in court and “stellar” results driven by advertising strength.
FB Stock News:
In dismissing the complaint filed Dec. 9, the court faulted the FTC’s “vague” assertion that Facebook has a 60%-plus market share, with no explanation of how that figure was derived.
The court said the FTC can amend its complaint within 30 days, so the bulk of the FTC’s case remains in play. However, U.S. District Judge James Boasberg threw out a parallel suit against Facebook filed by states’ attorneys general and narrowed the FTC’s complaint, saying it could no longer seek relief for certain “long-past conduct” alleged to be anticompetitive.
Time may be on Facebook’s side as it tries to avoid the ultimate penalty — an undoing of 2012 Instagram and 2014 WhatsApp deals.
However, there’s a new legislative track through which Congress could rein in Big Tech. On June 23, the House Judiciary Committee narrowly approved a series of Big Tech antitrust measures that could have significant implications for Facebook, including raising the bar for approval of future acquisitions.
One measure requiring data portability and interoperability, which Cowen Washington Research Group analyst Paul Gallant called the “mildest” of the bunch, passed by a 25-19 margin. Three California Democrats opposed the measure, while three GOP members backed it. Prospects for passage are unclear.
Exactly what the bill would do would be up to the Federal Trade Commission to interpret. Yet industry observers say it could require letting users of Snap (SNAP), Twitter (TWTR) and other sites connect with Facebook users. It also might require data-sharing, which could erode Facebook’s ad-targeting advantage.
FB Stock: Bull Case
The big picture is that Facebook advertisers are using the social media site to connect with prospective customers like never before. The group of advertisers has grown to more than 10 million businesses from more than 8 million when the pandemic started.
The April 28 first-quarter earnings report showed revenue surging 48% to $28.1 billion, fueled by a 30% jump in ad prices. The price increase came even as the number of ad impressions served across Facebook properties grew 12%.
In the bull case, more and more businesses gravitate to Facebook, putting more of their ad dollars to work on its properties that deliver an industry-leading return on investment.
To protect and capitalize on its strong position, Facebook is innovating — and copying — rapidly. Its TikTok-like Instagram Reels is providing a new vehicle for advertising. Meanwhile, the Facebook Shops digital mall, first announced in May 2020, now has about 1.2 million active shops and more than 300 million shoppers, or at least browsers, per month, the company said on June 22.
Shops is Facebook’s big effort to bring e-commerce purchases in-house, instead of just facilitating user-advertiser connections that result in off-site purchases. Businesses can set up a single shop for customers to access on Facebook, Instagram and now WhatsApp.
Bringing “the merchant transaction onto the platform removes the need for off-platform tracking,” wrote Morgan Stanley analyst Brian Nowak. That lowers the risk of privacy-related changes and regulations that impede tracking of user activity outside of Facebook properties.
FB Stock: Not-As-Bullish Case
FB stock bears are a rarity among analysts, but the less-bullish case centers on the threat of regulation, both at home and abroad. Facebook has warned that ongoing privacy regulation and changes in mobile operating platforms could limit ad targeting and weigh on ad pricing.
The FTC wants Facebook broken up to create the same level of competition that would have existed without the Instagram and WhatsApp mergers. So far analysts are largely dismissing the possibility of a breakup. If it comes to that, analysts say the sum of Facebook parts would be worth more than FB stock. However, to the extent Facebook’s advertising prowess depends on driving more on activity within Facebook and Instagram, the implications of a breakup would become bigger.
Facebook and its Big Tech peers also could face potential headwinds from President Biden’s proposed tax hikes targeting international profits. Rising interest rates also could pinch growth stock valuations.
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FB Stock Analysis
After the court opinions came down Monday afternoon, FB stock took off, surging 4.2% to a record high 355.64. On Friday afternoon, FB stock eased 0.1% to 354.21.
What had been a slow and steady climb, offering multiple entry points along the way, suddenly became too extended for new buys on Monday, as FB stock rose more than 10% above its 50-day moving average.
FB stock’s relative strength line, the blue line in the charts provided, is now just below an all-time high.
After Facebook first revealed its Shops growth on March 19, FB stock gathered momentum. Investors could have bought when FB stock cleared a handle-like 299.81 buy point at the end of a long consolidation on April 1. The next day, FB stock cleared an official 304.77 buy point, according to MarketSmith.
Subsequently, investors could have bought FB stock when it rebounded off its 10-week line in mid-May. One final entry point came as FB stock etched out a 4-weeks-tight pattern, with weekly changes of less than 1.5% in consecutive weeks.
When a stock clears a 3-weeks tight pattern that’s positioned above a prior buy point, investors can use it as an opportunity add shares. On June 22, FB stock cleared the 338.40 entry point from the 3-weeks-tight consolidation, offering a fresh entry point.
Apple Ad-Targeting Headwinds
On April 26, Apple released its iOS 14.5 update that requires Facebook and other apps downloaded through the App Store to provide users a prompt. The prompt allows them to opt in or out of tracking their activity across third-party sites.
Early data from Flurry Analytics shows that only about 5% of U.S. app users and 13% worldwide have opted into ad tracking for any apps.
Eric Seufert, who runs the Mobile Dev Memo blog, has estimated that Facebook could initially take a 7% revenue hit if only 20% of global users opt into ad tracking.
The iOS release came just two days before Facebook’s Q1 earnings call. “It’s really early” to be drawing conclusions, CFO Dave Wehner told analysts.
“We continue to be concerned about the impact that this update is going to have on the ability of small businesses to use their advertising budgets effectively. That said, the impact on our own business, we think, will be manageable.”
Wehner added that Facebook is making progress “on our own solutions to help advertisers navigate these changes.”
Opt-outs mean Facebook will know less about users’ interests, life changes and purchases.
However, CEO Mark Zuckerberg said on March 19 that Apple’s iOS ad-tracking prompt could actually be a blessing in disguise for Facebook.
He suggested that Apple’s changes could “encourage more businesses to conduct commerce on our platforms” to make the most of their internal data for advertising purposes.
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How Much Is FB Stock Worth?
As of June 29, Facebook stock had a market cap of $998 billion. That makes FB stock the fifth-most-valuable company on the S&P 500 index, behind Apple, Microsoft (MSFT), Amazon (AMZN) and Google-parent Alphabet (GOOGL).
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FB Stock: Is It A Buy?
Facebook proved its mettle during an unprecedented economic downturn, and Wall Street analysts think this FANG stock still has a long growth runway.
Facebook stock boasts a stellar 99 IBD Composite Rating. The Composite Rating combines several key fundamental and technical factors into a single score. IBD research shows all-time stock winners often have a Composite Rating of at least 95 near the start of big runs.
It’s dangerous to bet against FB stock, even as it faces a long antitrust battle and regulatory threats, as well as headwinds from higher taxes and interest rates. Facebook has showed impressive agility with its well-timed e-commerce push. Now, despite lingering concern that privacy changes may dent Facebook’s advertising edge, FB stock is showing strength, rising past a buy point and continuing to scale new heights.
However, FB stock’s advance became extended with the June 28 antitrust case rulings.
Bottom line: Facebook is clearly a leader in this market rally, but FB stock is not a buy. Investors will have to wait for a consolidation before they can “like” this FANG stock again.
Be sure to read IBD’s after-the-close The Big Picture column each day to make sure growth investors have a green light.
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