FB: Is Facebook (FB) a Buy, Sell or Hold?

Facebook’s profits continue to support the stock
The company’s reputation has suffered
Regulation on the horizon that could cause a breakup of the company

Facebook (FB) shares have been a bullish beast since the IPO on May 18, 2012. The company offered 421,233,615 shares at $38 and raised $16.007 billion through the offering. The IPO was highly successful as the shares opened at $42.05 on the first day of trading. The price action that followed chased some investors from the stock as it dropped to a low at $17.55 per share four months later in September 2012. However, those that hung in there have been handsomely rewarded. The stock was trading at over $195 per share on Friday, November 15.

Facebook has a market cap of over $556 billion and is one of the most popular businesses and stocks in the world. Controversy continues to surround the company, but the stock price remains not far below its all-time high at $218.62 from July 2018.

Facebook’s profits continue to support the stock

The long-term path of FB shares over the past seven years has been impressive.

3 STOCKS TO DOUBLE THIS YEAR

(Source: Barchart)

As the chart highlights, the shares have posted steady gains over the past years. At $195.10 on Friday, November 15, FB stock was over five times the IPO price and under 11% below its all-time peak from July 2018. In the third quarter of 2019, FB reported earnings of $2.12 per share, exceeding consensus estimates, which were at $1.91 per share. The market is currently looking for FB to earn $2.52 per share in Q4.

The company’s reputation has suffered

Controversy has surrounded FB over the past years. Privacy issues, manipulative political advertising, and spearheading a new cryptocurrency, Libra, caused founder and CEO Mark Zuckerberg to appear before the US Congress and other legislative bodies and regulators around the world.

Facebook had 1.52 billion daily active users at the end of 2018, which is an astonishing figure considering that it represents 20% of all of the people in the world. The company has created fabulous wealth for its founder and other significant shareholders. Mark Zuckerberg’s net worth of over $70 billion makes him the fifth wealthiest person in the world. The power of Facebook’s dominant position has put the company in the crosshairs of regulators in the US and around the world.

Regulation on the horizon that could cause a breakup of the company

Mr. Zuckerberg has repeatedly stated that he believes more regulation is necessary when it comes to social media. However, some members of Congress and Presidential candidates believe that regulation is not enough, and companies like Facebook have become monopolies. The US government may force a breakup of the company in the future to encourage competition in the industry. Therefore, we could see lots of volatility in FB shares and other technology and social media companies that have dominant positions over the coming year. When it comes to Mr. Zuckerberg, the progressive wing of the Democrats is looking to impose a wealth tax that would eat away at his billions. At the same time, a wealth tax could force the founder to sell some of his considerable holdings to pay his tax bill each year. The prospects of a change in government policy that results in a breakup of the leading tech and social media companies, more stringent regulation, and a wealth tax could cause lots of action in the stock over the coming year.

FB shares were trading at $198.65 per share on Wednesday morning, down $0.67 (-0.34%). Year-to-date, FB has gained 51.54%, versus a 26.37% rise in the benchmark S&P 500 index during the same period.

About the Author: Andrew Hecht

Andy spent nearly 35 years on Wall Street and is a sought-after commodity and futures trader, an options expert and analyst. In addition to working with StockNews, he is a top ranked author on Seeking Alpha. Learn more about Andy’s background, along with links to his most recent articles. More...