Ignore AIERA, Facebook Is Still A Buy

motek 1The 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

Ignore AIERA, Facebook Is Still A Buy

Summary:

  • A robot analyst from Wells Fargo called AIERA (Artificially Intelligent Equity Research Analyst) has put a sell recommendation for Facebook.
  • AIERA can’t seem to comprehend the invidious status of Facebook as the world’s biggest platform for social marketing and advertising.
  • My natural intelligence told me to ignore AIERA’s recommendation. I still rate FB as a buy.
  • The Artificial Intelligence Neural Network of I Know First still gave Facebook’s stock positive market trend algorithmic forecasts.
  • Deutsche Bank analyst Lloyd Walmsley recently raised his price target for FB to $220 from $215.

Wells Fargo’s (WFC) robot analyst, AIERA (Artificially Intelligent Equity Research Analyst) gave Facebook (FB) a sell rating. This trade recommendation to dump FB contradicts the overall bullish outlook of Wall Street Analysts. As per TipRanks, 31 analysts have a buy recommendation for FB. Their average 12-month price target for Facebook’s stock is $197.17.

AIERA’s AI algorithm was likely coded to be cautious on high-flying tickers like FB. It is true that FB’s YTD gain this year is already almost 50%. FB’s valuation is now so high that it now has a P/S ratio of 14.89 and P/B of 7.51. A robot analyst programmed to play it safe will automatically flag FB as a sell because it was already “overvalued.”

(Source: Finviz)

AIERA also doesn’t seem to understand that Facebook’s rapid rise in valuation is due to its status as the only platform that matters for social marketing/advertising. Facebook’s 5-year annual sales growth is 49.42% and its 5-year EPS growth is 62.06%. Facebook’s invidious growth story is because it is now only second to Google (GOOG) when it comes to digital advertising.

(Source: Reuters)

A robot analyst who can’t appreciate Facebook’s global leadership position in social-centric digital advertising should be ignored. Common sense should tell investors that FB remains a strong buy. Facebook has more than 2 billion active users. It is why 93% of social media advertisers are forever beholden to buy ad placements on Facebook.

(Source: Sprout Social)

Instagram Ads is now also the second-most favored platform for social media advertisers. Once Facebook Messenger Ads completes its global roll out, Facebook will probably own the three most popular platform for social media advertisers.

Facebook Can Sustain Its Growth

The latest report from eMarketer again reinforced the continuing growth story of Facebook. The $71.60 billion U.S. digital ad industry is still dominated by Facebook and Google. This is likely why Lloyd Walmsley, an analyst at Deutsche Bank raised his PT for FB from $215 to $220.

The chart below proves why the robot analyst of Wells Fargo is wrong in its sell rating for FB. Two years from now, eMarketer expects Facebook to generate $25.56 billion from U.S. digital advertising. That’s more than double the 2016 revenue of Facebook from U.S. advertisers.

The estimate of eMarketer might also be lower than what will actually be generated. Let us not forget that the TV-anywhere Facebook Watch service could become a major channel for more Facebook ads. Facebook Watch could go after those big money spent on traditional TV advertising.

TV advertising in the U.S. was worth $67 billion last year. If Zuckerberg allocates enough budget for original programming, Facebook Watch could become the ad-supported version of Netflix (NFLX). Getting 20 million or 30 million Americans to become loyal audience of Facebook Watch can lead to additional $5 or $6 billion in additional annual advertising revenue for Facebook.

(Source: Magna Global)

My Recommendation

Ignore Wells Fargo’s robot analyst. Facebook remains a strong buy. The Artificial Intelligence Neural Network of I Know First also still gives FB positive near and long-term algorithmic market trend forecasts. I trust the track record of I Know First AI. Its stock picking AI service has been in business for many years. AIERA is still a new AI software that still needs more deep learning time so it can appreciate the special traits of publicly-traded companies.

Mine and I Know First’s buy ratings for FB are in line with the stock’s bullish near and long-term technical indicators. Technical indicators are simply mirroring the emotion of the stock market. Facebook remains an adored momentum growth stock. You better go long FB now while it still trades well below the average $197 PT made by 31 Wall Street Analysts. The combined weight of 31 highly-paid, well-educated analysts is still more significant than a robot analyst’s stock analysis.

(Source: StockTA)

Past I Know First Forecast Success with FB

I Know First has made accurate predictions on FB in the past, such as its bullish article published on April 26, 2017. In the article, rising net income, significant decrease in cost of goods sold, and impressive growth rates in mobile advertising influenced FB’s stock to increase. Until now, FB shares have increased by 17.57% in line with the I Know First algorithm’s forecast. See chart below.

 

(Source: Google Finance)

This bullish forecast for FB was sent to I Know First subscribers on April 26, 2017. To subscribe today click here.

I Know First Algorithm Heatmap Explanation

The sign of the signal tells in which direction the asset price is expected to go (positive = to go up = Long, negative = to drop = Short position), the signal strength is related to the magnitude of the expected return and is used for ranking purposes of the investment opportunities.

Predictability is the actual fitness function being optimized every day, and can be simplified explained as the correlation based quality measure of the signal. This is a unique indicator of the I Know First algorithm. This allows users to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above 0 in order to fill confident about/trust the signal.

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