Social media giant Facebook, Inc.’s (FB) products include Facebook, Instagram, Messenger, WhatsApp, and Oculus. The company generates revenue primarily through advertising. With a growing user base, the stock has gained 24% over the past year. FB’s growth accelerated amid the coronavirus pandemic with people spending more time on social media while shut in at home.
So, it remains to be seen if the mega-cap company can maintain its market dominance with the help of its huge user base or succumbs to regulatory measures, which are expected to be accelerated under the Biden administration.
FB delivered impressive performance in the last-reported quarter. But the uncertainty related to the stock in the near term has led our proprietary rating system to rate the stock as “Neutral.”
Here is how our proprietary POWR Ratings system evaluates FB:
Trade Grade: C
FB is currently trading above its 50-day and 200-day moving averages of $272.02 and $250.34, respectively, indicating an uptrend. However, the stock has lost 1.3% over the past three months, indicating short-term bearishness.
FB’s revenue climbed 21.6% year-over-year to $21.47 billion for the third quarter ended September 30, 2020. Its advertising revenue increased more than 22% year-over-year to $21.22 billion. Its average revenue per User (ARPU) increased 8.7% year-over-year to $7.89, while daily active users (DAUs) increased 12% year-over-year to 1.82 billion. Net income increased 28.8% year-over-year to $7.85 million, yielding EPS of $2.71, which increased 27.8% year-over-year.
The company launched redesigned d Facebook Pages on January 6, characterized by a revamped layout, dedicated news feed, and actionable insights, among other changes. FB also introduced a carts feature on WhatsApp in early December 2020 to make buying and selling easier. The company also launched several cloud-streamed games in its app and on browser in October.
Buy & Hold Grade: B
In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers , FB is well positioned. The stock is currently trading 9.8% below its 52-week high of $304.67, which it hit on August 26, 2020.
Leveraging its huge user base, the company’s net revenue grew at a CAGR of 29.4% over the past three years. Also, its EBITDA increased at a CAGR of 14.4% over the same period, while its EPS increased at a CAGR of 19.4%.
Peer Grade: D
All these industry competitors have comfortably beaten FB’s 24% gain over the past year. PINS, NFLX, and SNAP have gained 226%, 73.4%, and 180.5%, respectively, over the same period.
Industry Rank: A
The Internet industry is ranked #23 of 123 StockNews.com industries. The companies in this industry focus on numerous online businesses including social media, e-commerce, content, auction exchanges, and advertising sales.
As people were confined to their homes amid the coronavirus pandemic, this industry soared with increased demand for the products and services provided by the companies. Moreover, because of the changing consumer behavior and ongoing digitalization at an accelerated pace, this growth momentum is expected to continue in the coming months.
Overall POWR Rating: C (Neutral)
FB is rated “Neutral” due to its bleak near-term outlook and several regulatory challenges, despite having positives such as product and service innovations and strategic investments, as determined by the four components of its overall POWR Rating.
Despite facing some challenges, we think FB has the potential to gain in the long run, based on its continued business growth, favorable earnings and revenue outlook, and favorable analyst sentiment. But investors should wait for better entry points.
Analyst sentiment, which gives a good sense of a stock’s future price movement, is impressive for FB. It has an average broker rating of 1.4, indicating favorable analyst sentiment. Of 46 Wall Street analysts that rated the stock, 18 rated it “Strong Buy.” Moreover, FB has an impressive earnings surprise history, with the company beating consensus EPS estimates in three of the trailing four quarters. A consensus revenue estimate of $104.51 billion for 2021 represents a 24.4% increase year-over-year. Its EPS is expected to grow 12.3% in 2021, and at a rate of 16.6% per annum over the next five years.
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FB shares were trading at $276.77 per share on Monday afternoon, up $2.27 (+0.83%). Year-to-date, FB has gained 1.32%, versus a 2.34% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...
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