Facebook (FB) Stock Price and Forecast: WhatsApp signals some problems

Users download millions of rival apps Signal and Telegram.
Facebook data usage under the microscope of public opinion.
Elon Musk (TSLA) promotes rival Signal app and SIGL in error!

Ivan Brian FXStreet

Update: The New York Times reported over the weekend that Facebook (FB) and Alphabet (GOOGL) are involved in an antitrust lawsuit filed by 10 state attorney generals. The lawsuit is in relation to allegations of collusion between Facebook (FB) and Alphabet (GOOGL) on advertising. A spokesman for Alphabet (GOOGL) said the agreement between the companies was “well publicized”. A Facebook (FB) spokesman said that “any suggestion that these types of agreements harm competition is baseless”.

Separately WhatsApp has informed it is delaying its new privacy policy until May 15.

Facebook (FB) found itself at the centre of a self-enforced storm last week as data concerns about its WhatsApp subsidiary became one of the hottest news topics of the week.

WhatsApp announced an updated terms-of-service policy coming into effect on February 8th, which will increase some of the data shared with parent company Facebook (FB). Users were effectively told to take it or leave it. And millions decided to leave it!

The Signal messenger app became one of the biggest downloads on Android and Apple stores. Signal Advance Inc, a totally unrelated company saw a 6000% share price jump. Telegram app announced last week it had grown to 500 million users.

A full-blown mess of its own making, WhatsApp then attempted to dampen some of the rumours circulating with a clarifying statement on January 12th. However, users are cautious of Facebook’s (FB) handling of data and the constant updates from WhatsApp only served to add fuel to the fire.

FB stock: Short-term pain for long-term gain

Facebook investors, though, should note that WhatsApp is not fully monetized within the Facebook group. WhatsApp used to charge a $1 fee, but Facebook (FB) announced in 2016 that it was removing the fee as WhatsApp was not generating meaningful revenue in the long term. FB wanted to use WhatsApp for communicating directly with businesses and thereby increasing monetization. Facebook may have decided on a balance between losing users in the short term but monetizing those that continue to use the service. And betting that having 2 billion users means you can afford to lose some in the short term and still weather the storm.

Facebook to have and to hold?

Facebook (FB) has long been the subject of people’s ire with many stating they would never use it. But many still do! Certainly, the recent campaign by Facebook advertisers to boycott it for promoting hate speech has led it to rethink its ways and it is taking steps to be more alert to its users and advertisers.

Advertising growth

Facebook (FB) has too much scale with over 2.6 billion active users. Advertisers will try to influence its behaviour but cannot avoid that size of an audience. Advertising revenue grew by over 20% in Q3 2020 and over 10% in Q2 2020. With the economy set to recover in Q2 2021, many small businesses will rely heavily on Facebook to promote battered businesses.

Facebook owns its own cloud to keep costs under control. It can easily adapt its site to the latest trends and lets not forget it also owns Instagram, with over 1 billion active users.

It has been here before

Facebook (FB) has been in the eye of many storms before and weathered them all. In 2019, the Federal Trade Commission handed the tech giant a $5 billion fine. The EU fined it $122 million in 2017. Facebook (FB) share price still did not suffer.

Strong fundamentals

Facebook (FB) trades on a price/earnings (PE) ratio of 28 versus the S&P average of 38. FB had revenue of over $70 billion for 2019, up from $18 billion in 2015. The company founded by Mark Zuckerberg had a profit of $58 billion in 2019 from $15 billion in 2015.

Facebook (FB) technical analysis

FB has been in a sideways $245-305 range since summer 2020. Currently, it is testing support at $245. If the latter level is broken, the uptrend on the weekly chart will end and next support should be found at $224, the high from Jan 2020. A breakout to the upside would give a target towards $360, the width of the sideways range.

Facebook (FB) will announce Q4 earnings on Wednesday, Jan 27th after market close.

The author has no position in Facebook, Tesla or Telegram and no business relationship with any company mentioned in this article. The author has been paid for writing this article. FXStreet is not a registered investment advisor and nothing in this article is intended to be investment advice.

Author

Ivan Brian

FXStreet

Ivan Brian started his career with AIB Bank in corporate finance and then worked for seven years at Baxter. He started as a macro analyst before becoming Head of Research and then CFO.

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