The use of social media has increased in recent weeks as more and more people are forced to stay at home in the midst of the Covid-19 pandemic. In recent reports, social media giants such as Facebook (FB), Twitter (TWTR), Snap (SNAP) and TikTok have reported increased engagement.
As the largest player in the industry, Facebook has benefited. The company recently reported that messaging on its assets has increased by more than 50%. However, this increase in use was not reflected in the company’s financial statements.
The main reason that Facebook’s finances could be affected is that businesses are not spending as much on advertising as they did before the virus epidemic. Instead, many companies are keeping cash to survive the looming uncertainty.
As a result, the FB stock was punished. Since the beginning of the year, its share price has fallen by more than 23%, which is a performance below that of the S&P 500 (US 500) and Nasdaq-100 (US 100), which fell ” about 15% and 22% respectively.
Why investors still choose Facebook in 2020
Yet Facebook is one of the most admired companies in the investment community. According to data collected by Barrons, Kiplinger’s and Business Insider, this is one of the main positions among many hedge funds.
There are several reasons why investors just love Facebook. First, the company has some of the most powerful online services in the world. WhatsApp is the default messaging app for many people, while Facebook is the world’s largest social media platform, with more than 2.5 billion users. Instagram is the largest image-based social media platform. By owning these products, the company has a large gap that is almost impenetrable.
Second, Facebook is the second largest advertiser. In 2019 alone, the company made more than $ 70 billion. That puts him right behind Google (GOOGL), which made more than $ 161 billion. More importantly, the business is now growing at a faster rate than Google. Facebook posted revenue growth of more than 20%, compared to 15% for its rival.
Third, Facebook has one of the healthiest balance sheets in the United States. The company has more than $ 54 billion in cash and only $ 11 billion in long-term debt. This means that the business will eventually thrive even if it experiences a slowdown this year. In addition, these figures mean that Facebook has the opportunity to acquire certain companies that it could not buy a few weeks ago due to their high ratings.
Finally, investors love Facebook because of its business model, which results in higher margins. It has a gross margin of more than 81% against 55% for Google and 67% for Twitter. Interestingly, Facebook has the ability to increase its margins by abandoning some of its unprofitable bets such as hardware. He also has more ways to increase his income by monetizing platforms such as WhatsApp and Facebook Messenger.
Facebook share price analysis: performance over the years
If you want to invest in Facebook stocks, having a good understanding of its past performance could help you better navigate its future fluctuations.
Facebook launched its IPO in May 2012. The company valued its shares at $ 38, but the stock ended up opening at $ 48. Since then, the stock price has mainly trended upward, with some occasional short-term negative swings, and has increased by more than 400%.
[please, make an infographic: Facebook stock historical performance]
The company has almost always managed to do better than analysts’ expectations. According to data from Seeking Alpha, Facebook has missed analyst revenue estimates only twice and earnings estimates only once since 2015.
The company’s biggest crisis occurred in 2018 when the Cambridge Analytica scandal broke out. This revelation has led to an increased focus on data privacy and how the company manages the large amount of data it has. It also led to several investigations by the Federal Trade Commission (FTC), the Department of Justice (DOJ) and several attorneys general, which had a negative impact on the company’s public image as well as on performance. of his actions.
In 2018, the FB share price lost more than 20%. However, in 2019, the title gained almost 60%.
FB stock market prospects: does it have a chance of recovering after the pandemic?
According to Warren Buffett, the best time to buy stocks is when others are afraid. Indeed, in times of fear, one is able to pick up high quality companies at a relatively low valuation. This is what happened in 2018 when everyone thought that Facebook would not survive the assault.
To make a rational forecast of the Facebook share price, it is important to look at the big picture rather than the current temporary turmoil.
Like all businesses, Facebook should face a difficult year, as many businesses take a break from their advertising campaigns. Yet, as history has it, the economy is still recovering after a crisis. Once the pandemic is over and the uncertainty fades, businesses will have to advertise their products and services again to compensate for the damage. With our lives turned around the Internet, Facebook will be the first place for them to promote their brands.
It is also important to look at the evaluation. Facebook is now valued at around $ 458 billion. The company has a forward PE ratio of 19.40, which is lower than that of Google and Twitter with their forward PE of 22 and 35. It also has an EV on EBITDA of 14 compared to Google and Twitter of 15 and 35.
This means that Facebook, which is growing faster, is now undervalued compared to its main competitors.
Facebook share price forecast for 2020 and beyond
In this Facebook market forecast, we look at what analysts have to say about the company.
Facebook is one of the companies most covered by selling analysts. Using the data compiled by Marketbeat, we find that most Facebook stock market predictions are on the rise. The most bullish forecasts come from SunTrusts, Monness Crispi and RBC Capital Markets who are still expecting the stock to increase from its current valuation of $ 160.
[please, make an infographic: The latest Facebook analyst ratings]
Meanwhile, Wallet Investor, a famous online forecasting service, gives less optimistic stock predictions on Facebook, expecting its shares to trade at the maximum of $ 177 this year.
[please, make an infographic: Facebook share price monthly prediction for 2020]
According to Long Forecast, the Facebook headline could end the year at around $ 183.
[please, make an infographic: Facebook share price monthly prediction for 2020]
Technical projections of FB stocks
In addition to looking at the fundamentals, it’s also important to look at the formation of stock charts to determine short-term Facebook share forecasts. Looking at the four-hour chart below, we see that FB stocks are trending higher as they try to reduce losses from March.
So, will the Facebook stock increase? As the Facebook share price analysis shows, we find that the upward trend is not strong enough. Also, the stock is in the fifth wave of Elliott Wave, which means it could drop lower if it drops below the current level of $ 160.
[please, make an infographic: Facebook chart technical analysis]
So what is Facebook stock: buy or sell?
With all this information, is Facebook stock a good investment? As with any other asset, there is no definitive answer to this question. It may depend on how long you want to invest in the business. If your goal is short-term profit, there is a risk that the stock will drop if the stopping of the coronavirus continues for a longer period. Volatility is also likely to increase, especially as the earnings season approaches.
However, if your goal is to invest and keep it for the longer term, it may be wise to invest in the business. It has a solid balance sheet, an impenetrable gap, the potential for increased margins, a likely dividend and a huge market opportunity as the global economy gets back on track. Therefore, the Facebook stock in 5 years will most likely be worth much more than it is today.
Consider that analysts expect the company’s revenues to reach $ 165 billion in 2025. If it does, that means its revenues will be almost comparable to those of Google today. This would give it a valuation of more than $ 700 billion.
[please, make an infographic: Facebook 5-year revenue estimates]
Since the stock has experienced several ups and downs in the past few months, we recommend that you arm yourself with as much knowledge as possible. Do your research, take into account the latest news, market trends, expert advice and technical analysis to decide if you want to invest your money in the business.
If you think you are not ready to make long-term investment commitments, but still want to try to take advantage of the volatility of the security, you can do so via difference contracts (CFDs).
You can learn more about CFD trading with free online courses and find out how to trade Facebook CFDs by reading our full guide. Always stay up to date with the latest news on Facebook share prices with Capital.com.
So what do you think of the future of this tech giant? Is your Facebook price forecast bullish or bearish?
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