This Facebook stock forecast article was written by Ari Herzog, a Financial Analyst at I Know First

“There is a huge need and a huge opportunity to get everyone in the world connected, to give everyone a voice and to help transform society for the future. The scale of the technology and infrastructure that must be built is unprecedented, and we believe this is the most important problem we can focus on.” – Mark Zuckerberg, CEO and Founder of Facebook

Forecast Highlights

• Strong Q2 Earnings ingrained into the stock price, provide investors a moment of relief
• Possibilities of Libra are endless and could lead to limitless growth
• Privacy concerns and FTC Settlement are something to watch out for
• Continued monetization of diverse platforms leads to exponential financial benefits for FB and increased engagement for its viewers

Overview

What is Facebook (FB)? Is it a digital messaging company? Is it a social media company? Is it a communications company? Or is it just a straightforward technology company? According to Zacks, the company founded in February, 2004 by Mark Zuckerberg in the small college town of Cambridge, Massachusetts is in the ‘Internet-Services’ industry, but this label does not do justice to the broad reach of products and services that it provides. In reality, FB has a complete monopoly over our digital communication in just about every country around the globe. From Facebook Messenger to Instagram to WhatsApp, it has control over almost all forms of digital communication and public information that we choose to provide on all forms of the internet. Yet, FB has never been one to settle, and it refuses to stop now. Whether it be refuting privacy concerns, continuing its expansion in monetizing its aforementioned platforms, or progressing towards rolling out a financial-system altering cryptocurrency labeled Libra, FB is already three steps ahead of its competitors. It is this proactive mindset that leads me to make a long-term bullish call on Team Zuck.

Q2 Earnings Show Facebook’s Focus on Per User Revenue

On July 24^th, Facebook announced its financial performance for the quarter ending in June. In the report, the company claimed an Earnings-Per-Share (EPS) of $1.99, which exceeded analyst estimates of $1.90 and resulted in a 4.74% increased earnings surprise. On top of this, revenue came in at $16.89 billion, again surpassing analyst forecasts by an impressive 2.68%. In fact, FB has topped consensus revenue and EPS estimates three out of the last four quarters. In particular, Facebook’s monthly-active users grew 8% to 2.41 billion, while its average revenue per user (ARPU) also improved to $7.05, ahead of FactSet’s forecast of $6.87. One notable area to watch moving forward is the deceleration of Facebook’s ad revenue growth. In Q2 2019, the tech giant generated $16.6 billion in advertising revenue, a YoY increase of 28%. But the tech company’s ad revenue growth has slowed down since last year when it rose 42% YoY. This slowdown in growth comes despite advertising contributing more of Facebook’s total revenue, up from 98.5% last year to 99.6% for the quarter this year. 

Libra, Libra, Libra

Announced earlier this summer, Facebook believes its ground-breaking crypto project can help bring digital currency into the mainstream by leveraging its massive existing user base and ability to constantly monitor the platform for any suspicious use. The latter idea, regarding FB’s aim to patrol the medium, has been a major concern of many US regulators as they see the cryptocurrency as a means for terrorist organizations and money launderers to seamlessly transfer funds across borders. To name a few, both US Federal Reserve chief Jerome Powell and President Donald Trump both brought up major financial and political concerns earlier this month about Zuckerberg’s shiny, and seemingly friendly, cryptocurrency initiative.

Facebook cannot create such a system-altering currency without heavy backlash, as Facebook executives stood in front of Congress committees earlier this month only to be ripped apart about the seeming insanity of creating a widespread payment system without also inducing regulations similar to those seen by banks and other financial institutions. At the June 17^th hearings, Facebook executive David Marcus worked hard to quiet the lawmakers’ fears. He steered the conversation away from the potential disruption and towards Libra’s unique ability to bypass the typical ‘Wild West’ heyday of the crypto industry and become a viable payment option. In particular, he acknowledged the vulnerabilities of cryptocurrencies like Bitcoin to be used by criminals due to their decryption. Namely, cash is valuable for criminals due to its lack of transaction or ownership record. While Bitcoin carries an unalterable transaction record, it does not always have an ownership record – similar to cash. Yet, Mr. Marcus was quick to point out Libra’s differentiation in the fact that both the transactions made and who made them will be recorded on the platform. David Marcus even inferred that law enforcement has the ability to access the transaction and ownership records when need be. One popular example of law enforcement leveraging cryptocurrencies, and bitcoin specifically, is when they used Ross Ulbricht’s transaction history in 2015 to convict him of running the online drug site known as Silk Road.

While hurdles remain nonetheless, it does not take a degree in creative writing to imagine the financial benefits for Facebook’s revenue. Through the currency, users will ideally be able to purchase items in a marketplace from one another as well as from third-party sellers, with Facebook and other involved partners taking a cut of each transaction. In particular, Zuckerberg’s firm wants to use its role in the messaging world to create the same positioning in the financial world by targeting the unbanked or underbanked populations of the world.

When Life Gives You Privacy Concerns, Take a Settlement And Run

Earlier this month, Facebook agreed upon a $5 billion privacy settlement with the Federal Trade Commission (FTC). Despite the large figure, the fine actually boosted the FB stock further into buy territory, as the deal mitigates, but does not eliminate, Facebook’s ongoing regulatory uncertainty. The decision stems from a scandal a few years back in which Facebook exposed 87 million users’ data to Cambridge Analytica, which then leveraged the data to target 2016 election messaging in favor of the Trump campaign. Similarly, Facebook will also feel an impact due to increasing data privacy regulation stemming from around the globe, including the EU’s GDPR bill as well as the California Consumer Privacy Bill (CCPA), which is expected to take hold in January 2020.

Antitrust regulation remains a major concern for dominant tech companies such as FB, Amazon, Apple, and Google parent Alphabet. All three stocks dropped on June 3^rd after US federal lawmakers decided to enhance their antitrust probe into the respective monopolistic practices of these technology giants. Specifically, the regulators are looking into whether the corporations leverage their massive platforms and consumer base to inhibit innovation and entrepreneurship from smaller competitors.

Continued Monetization of Under-Developed Instagram, WhatsApp, and Messenger Platforms 

Facebook plans to make commerce and shopping an increasingly mainstream byproduct of the core functionality for its social and messaging apps, starting with new payment products designed to enable smoother purchasing experiences. Facebook has a strong belief that shopping and other forms of e-commerce will be a powerful growth engine over the next handful of years, and it is proactively working to make its vision come true. Facebook aims to converge the experience of users and businesses on its platforms by first building new tools that enable various creators, small businesses, and larger brands to develop a local presence – such as product catalogs typically seen on retail company websites. To gain the most out of its viewers, Facebook is rolling out new features that allow users to directly seek out and buy products in-app. Similarly, the tech company is especially high on Instagram Shopping, despite the feature still being in its baby days, as it has accelerated testing and roll-outs of fresh features centered around in-app purchasing. 

On top of this, FB will begin to take a 30% cut of fan subscriptions starting on January 1^st, 2020. Fan subscriptions are a relatively new concept that the company rolled out on its main ‘Facebook’ platform. The idea allows creators to charge their viewers $4.99 per month in order to receive exclusive content and a lucrative ‘fan badge.’ Apple and Google have already begun taking 30% of the first-year revenue brought in through subscriptions purchased on their respective mobile devices. Facebook’s Director of Media Monetization Kate Orseth said FB is determined to allow its creators to keep 70% of the revenue, and FB will not take in any additional first-year fees for mobile purchases in order to do so. As Apple and Google only take 15% after the initial year, Facebook will claim the other 15% so the creators can maintain their 70%. On desktop shopping, Facebook will be able to gather the full 30% from the initial purchase. To maintain its fairness image, Facebook promises to only conduct their intake of fees for new subscribers starting in January and continue to not take in fees from existing subscribers.

Valuation

Facebook shows up today with a P/E ratio at 33.14, EPS of 5.91, and its PEG ratio sits at 1.37. This final value – FB’s PEG ratio – is where investors can look to for growth, especially when you compare it to its tech giant peers. Besides Amazon’s unbelievable PEG of 0.95, which indicates it being slightly undervalued despite its astronomical P/E ratio, Facebook appears to have the greatest mix of steady cash flow generation and massive growth potential out of its FAANG peers. I notably did not include Netflix from the comparables as the company has struggled recently due to increasing competition from rival streaming services, and does not seem to be in the same dominant category moving forward. Yet, both Apple and Google are struggling to find continued areas of growth while Facebook has untapped aspects of its business model that are seemingly ready to explode, such as creating a marketplace for content and everyday purchases on all of its platforms.

Taking into account FB’s continued growth of its multi-platform monetization and unlimited potential behind Libra integration, FB’s current price of $189.02 appears very attractive alongside its tech giant peers. Using the previously stated areas and ratios as catalysts, we can deduce that a P/E of 37 for FB is within reach. Applying our projected P/E of 37, and assuming EPS and diluted shares outstanding remain at 5.91 and 2.4 billion respectively, we arrive at a target price of $218.67, a 15.7% increase over its closing value of $189.02 on August 2^nd. 

Conclusion: What is the Financial Facebook Stock Forecast?

With Facebook’s clear dominance of the social media realm already being established, its revenue from advertising will be a staple moving forward. As the company continues to find creative ways to bolster targeted advertising both for businesses and consumers, it will be able to charge higher prices for each advertising slot – thus increasing its margins. But advertising is not what makes Facebook a popular stock to point to for market bulls. In fact, the ability to gain more money from its viewers by creating a marketplace of subscriptions, content, and everyday purchases is an area that Facebook has just recently begun to explore. The diversity of its platforms could lead to Facebook competing for consumers with the likes of Amazon, Snapchat, and YouTube simultaneously. All this growth looks inevitable, it is the amount of integration and consumer demand that investors can only speculate about. If one also factors in even the slightest possibility of Libra becoming a viable form of payment, it is clear that Facebook appears poised to climb to a market cap similar to that of Amazon and Microsoft, two technology behemoths. Despite the short-term privacy concerns, Facebook is a buy and hold for years to come due to its ability to stealthy deal with PR issues, and massive opportunities for monetization and integration of its dominant platforms.

Current I Know First Bullish Facebook Stock Forecast

I Know First Algorithm recognizes the 1-month, 3-month, and 1-year potential for FB and, specifically, gives the coming year Facebook stock forecast a strong predictability of .62 and a signal of 248.91. This Facebook stock forecast is in line with my bullish prediction.

Past I Know First Success with Facebook Stock Forecast

On May 19^th, 2019, I Know First Algorithm issued a bullish Facebook stock forecast, with a 1-month signal of 3.56 and predictability of 0.23, FB gained 1.18% during that 1-month forecast.

Current I Know First subscribers received this bullish Facebook stock forecast on May 19, 2019.

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