Company Name: Facebook, Inc
Entry Price: $250
Target Price: $320
Projected Yield: 28%
Time Line: 3 to 6 months
A US tech giant owning Facebook, Instagram, WhatsApp, and Facebook Messenger. Facebook has a huge audience of over 3.20B users. With a market cap of over $700B, this is one of the companies with the most value.
What's the Idea?
Capitalize on a stock that may rise with being undervalued, great financial performance, new product development, and strong financial position amidst the crisis.
Buy Facebook Shares >>
Why Trade Facebook?
Reason 1: Was 2020 Really That Challenging for Facebook?
2020 was very much positive for the tech sector, as many tech giants soared. For Facebook, however, this was no mere cakes and ale. The company faced a number of issues, including the following:
- Advertising restrictions because of weak level of moderation and Facebook's restrictions on inappropriate content
- Advertising cost reduction due to the pandemic
- FTC-led US government lawsuits against Facebook, which claim the company is an illegal monopoly overwhelming the market competition and suggest splitting Instagram and WhatsApp into separate companies
- New iOS version release, which makes it more difficult for Facebook and other advertisers to collect user data
- Increased competition from other companies and brands, especially TikTok, which exploded in popularity
- The negative effect of blocking Donald Trump's account
In 2020, Facebook stock rose only by 33%, while the company's value decreased by 13.80% since early December.
At first sight, these issues may seem serious ones, making it a struggling quest for Facebook stock to continue rising. However, this is still one of the largest tech companies globally, with a huge target audience. The monthly active users (MAP) number reaches 3.20B, which makes Facebook remain a very valuable and convenient channel for promotions, while ad restrictions will be lifted sooner or later, moving forward.
On the other hand, the anti monopoly claims may last long and still not arrive to anything. Instagram and WhatsApp are too much integrated with Facebook, and it could be too complex an issue to split them into separate products.
SnapChat, Pinterest, and Tiktok are Facebook's competition indeed, but they are just gaining popularity and do not have such a significant audience coverage, so can they really compete with Facebook? Moreover, some unique features by these brands are often brought into Facebook products, so the competition is actually not that serious.
Apple's restrictions on collecting user data will make it difficult for Facebook to customize ads, but it is still unclear how much these restrictions are going to reduce Facebook's advertising product quality.
Finally, blocking Donald Trump's account and those of his associates had a negative effect not only on Facebook, but also on the competition that is trying to comply with the same policy. The news regarding it will soon fade out be forgotten.
Reason 2: Product Development
Facebook is constantly adding new features, which includes, for instance, Facebook Instagram Shops. This service allows online stores to create online showcases on Facebook and Instagram for free and sell products directly to customers.
In addition, the company announced Libra cryptocurrency release, which could simplify transactions within the platform and create new fintech services for users.
Another feature of interest lies in VR products, with Oculus VR headset having already been released (705K devices have already been shipped). This project has not yet even made it to break even, but it still has a huge potential.
Overall, improving the existing products and services and the development of the new ones may help Facebook continue rising in the midterm.
Reason 3: Financial Performance
Despite all the issues, Facebook is still able to demonstrate good financial results. In particular, the number of active users per month in Q1-Q3 2020 rose by 11%, while the year-to-date earnings went up by 16.70%, and the diluted EPS soared from $3.87 to $6.22; int he meantime, Google's earnings rose by only 8.50%.
Facebook has a good operating cash flow, amounting to $24.7B in Q1-Q3 2020, and the financial position is fine, too, with no debt burden and $55.60B in cash. This makes it possible for Facebook to continue trying new features and developing various businesses.
Reason 4: Good Indicators
Currently, Facebook's P/S and Forward P/E are 9x and 24x, respectively. Snap and Pinterest, which are the nearest competition, have its P/S at 36x and 32x, and Forward P/E, at 235x and 112x. Meanwhile, Google, with lower earnings, has P/S at 7x and Forward P/E at 28.50x.
This makes Facebook quite undervalued compared to the competition. In early January 2021, JP Morgan and Goldman Sachs increased Facebook target prices to $340 and $330, respectively.
How to Use the Idea
- Buy Facebook Inc shares at $250.
- Allocate no more than 2% of your portfolio amount. To build a balanced portfolio, you can use recommendations by our analysts.
- Sell the stock when the price is at $320 per share.
How to Buy Facebook?
If you don't have an investment account yet, open it now: this can be done online, in just 10 minutes. All you need to do is fill out a short form and verify your account.
After opening an account, you can buy shares in either of the following ways:
Freedom24 Online Store: This is the easiest way to do it. Add the number of shares you want to buy to the cart and pay by credit card. Once the transaction is processed, the purchased shares will appear on your investment account.
Freedom24 Web Platform: In the Web Terminal section, type FB.US (Facebook Inc ticker in the NASDAQ) in the search box, and select Facebook Inc in the results. Open a secure session in the trading window on the right, select the number of shares you want to buy, and click Buy.
Freedom24 iPhone or Android App: Go to the Price screen and tab the search icon in the top right corner. In the search dialog that will show up, type FB.US (Facebook Inc ticker in the NASDAQ) and select Facebook Inc in the search results. You will then see the stock in the market watch; tap it and go to the Order tab in the dialog that shows up. Specify the number of shares you want to buy and click Buy.
Buy Facebook Inc stock while the company recovers after temporary issues!
Buy Facebook Shares >>
*Additional information is available upon request. Investment in securities and other financial instruments always involves risks of capital loss. The Client should make himself aware at his own accord, including to familiarize himself with Risk Disclosure Notice. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Commissions, fees or other charges can diminish financial returns. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and do not constitute an investment advice service. The recipient of this report must make their own independent decisions regarding any securities or financial instruments mentioned herein. Information has been obtained from sources believed to be reliable by Freedom Finance Cyprus Ltd or its affiliates and/or subsidiaries (collectively Freedom Finance). Freedom Finance do not warrant its completeness or accuracy except with respect to any disclosures relative to the Freedom Finance and/or its affiliates and the analyst’s involvement with the issuer that is the subject of the research. All pricing is indicative as of the close of market for the securities discussed, unless otherwise stated.