FB Stock Forecast: Acquisition Help Facebook Dominate

motek 1This FB stock forecast article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Summary:

  • FTC is probing Facebook over its acquisitions of potential rivals. FTC wants to know if these purchases were to eliminate competition of Facebook.
  • My takeaway is FTC wasting people’s money and time over this investigation. Facebook is of course buying start-ups and small firms to protect its business.
  • It is not an anti-trust practice for a big, successful company to buy potential disruptors of its business. Protecting your moat/castle is standard business operation.
  • Facebook recently purchased brain-computing start-up, CTRL-labs, for $500 to $1 billion. Human-computer Interaction or HCI solutions can help boost Facebook’s future.

We should not ignore last month’s news that the Federal Trade Commission (FTC) was investigating Facebook (FB) practice of acquiring smaller companies. The FTC suspects that Facebook is buying start-ups before they become threats to the social network/advertising giant. This investigation will not stop Facebook from buying other companies. Facebook recently bought another promising start-up, CTRL-labs, reportedly for $500 million to $1 billion.  

This new acquisition will help Facebook gets its hand on a good smart wristband-based brain-computing interface technology. CTRL-labs Corporation’s mission was to let people control their machines like a Jedi.

(Source: CTRL-labs Corp.)

It Is Not Anti-Trust Practice

If you are an American citizen, you should be mad. The FTC is acting like a fool and wasting taxpayer’s money. It is common sense – Yes it is true, Facebook is buying small companies that might become rivals. Buying them while they are still in start-up phase is cheaper than letting them grow larger. 

By being vigilant buyers of promising start-ups, Facebook gets to own them before tech rivals like Google (GOOGL) does. This is legitimate business practice. I suspect that Zuckerberg has a dedicated team constantly scouting promising start-ups with cutting-edge technology/solutions. This acquisition team likely got billions of dollars to spend on purchasing promising start-ups.

The bureaucrats at the FTC should realize that it is a fundamental tactic for successful companies to remain vigilant. A great manager of a big, successful company will always try to buy emerging companies that might disrupt his company’s long-term prosperity. An FTC investigation cannot prevent or find fault when a cash-rich company like Facebook buy other companies that might become future rivals.

Facebook is a highly profitable company that made $22.112 billion in net income last year. Facebook does not pay dividends. Over the past five years, Facebook’s massive annual net income has resulted in the company having more than $48.5 billion in cash & short-term investments.

The crafty leadership of Zuckerberg allowed Facebook to enjoy 81.89% gross margin and 27.26% net income margin. This high-profitability means Facebook will continue to have massive profits, which it can spend to buy more companies. I do not Zuckerberg will consider paying dividends for the next 5 years. Best way to reduce the cash hoard is for Facebook to buy other companies that protects or strengthens its long-term position.

fb stock forecast
(Source: Seeking Alpha)

If you are long FB, you want the management to use some of this massive cash hoard in mergers & acquisitions. Buying companies to prevent competition is an easy way of securing the long-term prosperity of Facebook. It is gambling-like to invest in starts-up. Most of them will probably fail. However, one or two jackpot acquisitions could eventually lead to Facebook doubling its current cash hoard of $48.5 billion.

We are long FB because this company has excellent balance sheet. Facebook now has too much cash because of its super-profitability.

fb stock forecast
(Source: Seeking Alpha)

Diversifying Before It Actually Diversifies

Facebook’s advertising-driven business model will eventually lose its impressive double-digit annual growth. By investing profits in other aspects of commercial technology, Facebook will be well-prepared to diversify outside digital advertising. The long list of Facebook acquisitions showed Zuckerberg is investing in diverse aspects of monetizable technologies. Many of these acquisitions are not even related to the social network and advertising core business of Facebook.

The investment in buying CTRL-labs is Facebook making an early bet on the nascent human machine interface business. People will not pay for advertising-free Facebook or Instagram. However, I bet that there will be many people who will buy CTRL-labs’ neural interface wristband. The Jedi-like ability to control computers and smart devices will give Facebook additional revenue that does not come advertising fees.

Why FB Remains A Strong Buy

FB is still a buy because I am highly confident that FB can improve its YTD 42.51% before 2019 ends. The stock is trading way below its 52-week high of $208.66. The holiday shopping season is coming. FB’s stock might rise before 2019 ends because… companies around the world will raise their ad spending to raise the marketing profile of their products/services for the coming holiday spending season.

fb stock forecast
(Source: Seeking Alpha)

My background is in advertising. I know that advertising bookings triples or even quadruples during the last three months of the year. The holiday shopping quarter is when people have the most amount of disposable money. The December quarter is when people get their 13th month pay and Christmas bonuses.

This is true even for digital advertisers like Facebook. The expected ad spending during the December quarter will help Facebook deliver another record revenue and net income for this coming Q4 2019. My My fiscal 2019 EPS guesstimate for Facebook $8.50 and revenue will be $72 billion.

If my $8.50 EPS prediction comes true and the market gives FB a P/E valuation of 24x, Facebook’s stock will likely trade at around $204 by January/February 2020.

Conclusion

We should buy more FB shares and hold them until January next year. There are no obvious headwinds that could prevent FB from trading above $200. The digital advertising business is still largely a duopoly between Facebook and Google (GOOGL). This business reality cannot be affected by any government-initiated investigation.

Facebook is now too big and too profitable for politicians and government bureaucrats to disrupt. Mark Zuckerberg is too clever to be slowed down by anti-trust investigations. The massive $48.5 billion cash hoard of Facebook means it can hire the best lawyers to beat any anti-trust investigation. Even in worst scenario, Facebook can easily pay $2 billion to $10 billion if ever it loses any anti-trust litigation.

I Know First gave FB a very bullish one-year algorithmic trend score of 266.21. It fortifies my buy rating for FB.

fb stock forecast

Analysis of the monthly technical indicators and moving averages trend lines also favor going long on FB right now. I reiterate that my investing advice is always based on a 12-month holding period basis. We invest in FB now in the hope that it will rise in price within the next 12 months, not the next 12 days.

(Source: Investing.com)

Past Success With FB Stock Prediction

I Know First has been bullish on FB’s stocks in past forecasts. On June 1, 2019, the I Know First algorithm issued a bullish 3 months FB stock forecast. The algorithm successfully forecasted the movement of the Facebook’s shares. Until June 26, FB’s shares have risen by 12.85% in line with the I Know First algorithm’s forecast. See chart below.

This bullish Facebook stock forecast was sent to the current I Know First subscribers on  June 1, 2019.

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Please note-for trading decisions use the most recent forecast.