FB Stock Forecast: It’s Never Too Late to Purchase Facebook

This FB stock forecast was written by Jessica Kremer – Analyst at I Know First.

Summary

  • Despite its growth since the coronavirus crash, Facebook is still a buy due to its potential for growth through multiple revenue streams. 
  • On top of holding a healthy balance sheet and reaching a $668 market cap, Facebook was able to increase its advertising revenue during the pandemic.
  • Facebook, in comparison to its industry sector, fares better financially and is a very safe company to invest in. 

Facebook is currently trading at $238, up 40% from its coronavirus low of $146. The company’s rebound after the pandemic has demonstrated its durability. In its Q1 report, the company stated that the average number of daily users in March was 1.73 billion, an increase of 11% year-over-year. In addition to their ability for growth, the company’s recovery and strong user base have contributed to my buy verdict for this FB stock forecast.

Facebook’s Recent Turmoil

For years Facebook has received much backlash for the lack of action against hateful and violent speech on the app. While Facebook claims their lack of regulation results from the app’s principle of free speech, others argue that the app should do more to protect its users. Recently Facebook has stepped up and taken action against ads run by President Trump’s reelection campaign. This move, although not directly political, has contributed to the growing divide in America. Over the next few months before the election, Facebook will face much controversy regarding their regulation. Most likely, regulations will work to protect privacy and promote legal content. However, these regulatory pressures will not derail the company’s growth, and instead could provide good entry conditions. 

(Source: Statistia)

Since the crash of the stock price in March, there has been a major increase in the use of online forms of communication. Not only have users been using messaging and voice calls more, but usage of Newsfeed and Stories has also increased. In terms of its advertising revenue, the company initially saw a decrease in March. However, by the first three weeks of April, advertising had returned to its same level as last year. With time, and the increased shift towards online advertising, Facebook reached 8 million monthly advertisers as can be seen above. 

Facebook’s Potential for Growth

Recently, Facebook has partnered with Shopify and begun to allow businesses to set up shops on Facebook and Instagram rent-free. Not only will this new revenue stream will increase ad spending among retailers, but Facebook will also earn a 5% commission on the sales. Shops will also allow many small businesses, who lack the proper infrastructure, to start their e-commerce sales. As these businesses recover from COVID-19, this can serve as a great revenue source for Facebook. By taking a step into e-commerce, Facebook is realizing its potential to serve as more than a social media platform. 

In addition to SHOPS, WhatsApp (a platform owned by Facebook) is launching digital payments in Brazil. As reported by Fintextra, WhatsApp began testing digital payments in 2018 in India, but Brazil became the first country to get a nationwide roll-out. This new update would support Visa and Mastercard cards from Banco do Brasil, Nubank, and Sicredi, with processing from Cielo. Furthermore, Facebook has partnered with PayPal to invest in Gojek, an Indonesian ride-hailing, food delivery, shopping, and digital payments app. The company’s global expansions into various markets enable the company to grow its revenue streams. 

(Source: Simply Wall.St)

Finally, Facebook is one of the main players in Virtual Reality. This market space has enormous potential for growth. The company has ambitious projects in this area, with the launch of new and improved Oculus Quest Headset planned for 2020. Facebook’s work in virtual reality, in conjunction with artificial intelligence, has the ability to improve the communications, shopping, and entertainment applications already on the platform. In general, Facebook has great room for growth in various market spaces, with analysts hopeful for this growth.  

Why Facebook is a Great Buy Now

(Source: Investors.fb.com)

Despite Facebook’s healthy rebound, the company is still a buy. As can be seen above, the company was able to increase their revenue and their income from operations by 18% and 78% respectively. More impressively, Facebook’s diluted EPS also increased 101% to 1.71. This increase demonstrates the confidence investors have in the earnings of the stock. With these earnings projected to only grow further, Facebook is a great buy right now.

(Source: Simply Wall.St)

Facebook ended the most recent quarter with $60.3 billion in cash and investments on its balance sheet. Although the company does possess 15.07 billion in liabilities, this is a result of the significant investing the company has done in the past. In the Q1 earnings call, CFO Dave Wehner stated that the company’s investment in infrastructure has served them well, and that they “plan to continue to grow [their] CapEx investments to enhance and expand [their] global infrastructure footprint over the long term.” Additionally, as can be seen above, the company also holds enough assets to pay off their liabilities. With multiple avenues for growth, and a healthy balance sheet, Facebook stock is sure to increase even more.  

(Source: Seeking Alpha)

In comparison to its industry, Facebook is a very good buy. The company is the fifth most valuable company on the S&P 500 index, and has a market cap of $668 billion, as reported by Investors.com. Furthermore, in comparison to its industry sector, Facebook is one of the safest stocks to buy, receiving A ratings for their gross profit and EBIT margins. With the company already faring better than its industry, and its growth projected to only continue pushing the divide, I have to recommend Facebook as a buy. 

Conclusion

Facebook, a huge social media conglomerate, is one of the safest companies to bet on. During a time of uncertainty such as now, the company has proven its ability to bounce back, and with multiple avenues of potential growth, the company isn’t going anywhere. The company also holds a healthy balance sheet and is continuously profitable. Finally, our bullish FB stock forecast has strengthened my buy verdict. As can be seen above, our forecast comes with a strong predictability of 0.61, further convincing me of Facebook’s future returns. 

Past I Know First Success with FB Stock Forecast

I Know First has been bullish on Facebook stock forecasts in the past. On May 21, 2020, the I Know First algorithm issued a bullish FB stock forecast. The algorithm successfully forecasted the movement of Facebook’s shares. In almost one month, Facebook’s shares have risen by 4.02%, in line with the I Know First algorithm’s forecast. See the chart below.

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