Facebook, Inc. (FB) stock is set to open lower for the second trading day in a row on Monday after a wave of top-tier corporations pulled advertising from the social media giant, vowing to boycott through the November election if CEO Mark Zuckerberg doesn't take proactive measures to muzzle "hate speech." If fully implemented, the boycott could have a catastrophic effect on third and fourth quarter profits, sending the stock much lower.
Verizon Communications, Inc. (VZ), PepsiCo, Inc. (PEP), and The Cola-Cola Company (KO) lead a laundry list of blue-chip companies pledging to support the boycott. Facebook has announced it will "team up" with civil right groups and experts in an effort to forestall the boycott, but organizers are standing firm, awaiting more concrete action. It makes sense because Zuckerberg has assembled a poor track record on privacy and political initiatives in the wake of the 2016 election, in which foreign agents tried to sway U.S. opinion.
The company currently books $70 billion in annual advertising sales, with one-quarter coming from blue chips and the balance from small businesses. These less-known companies may also feel pressure to follow the boycott, but their participation is unlikely to make the evening news. In addition, small companies have been hurt badly by the coronavirus pandemic, making it that unlikely their ad spending will approach 2019 levels, even if Facebook makes peace with big corporations.
Wall Street has been quiet as a church mouse since boycott calls began, hoping that the company will resolve issues quickly. A wave of downgrades will be needed if that doesn't happen because analyst consensus of 30 "Buy" recommendations but no "Hold" or "Sell" calls doesn't match current events. That could be devastating to the current stock price, even though it has already sold off more than 35 points from last week's all-time high at $245.19.
Facebook Long-Term Chart (2012 – 2020)
The company came public to high expectations and widespread media coverage in May 2012, opening in the low $40s and trading up to $45 in the first hour of the regular session. That marked the highest high for the next 17 months, ahead of a decline that hit an all-time low at $17.55 in September. The subsequent bounce completed a round trip into the prior high in September 2013, setting off an immediate breakout that attracted intense momentum buying interest.
The stock lifted above $70 in March 2014 and eased into a rising channel, yielding a historic advance that finally stalled at $219 in July 2018. Facebook then tripped over its own feet, getting caught in a privacy scandal that triggered a 42-point sell gap and decline, breaking the rising channel. It dumped another 52 points before posting a two-year low in December 2018, while the uptick into 2019 stalled in July. Buyers returned in October, generating an uptrend that completed a breakout above the 2018 high in January 2020. The rally failed one month later, reinforcing new resistance at $224.
Facebook Short-Term Outlook
The vertical decline into March relinquished nearly 40% of the stock's value, bottoming out at $137.10. It bounced back to the February high in May and broke out once again, stalling above $240 around Memorial Day. June price action completed a triple top breakdown at that level after boycott news hit the headlines last week. The stock is now trading below the 50-day exponential moving average (EMA) for the first time since April 21, setting its sights on the 200-day EMA, which is perfectly aligned with the psychological $200 level.
Monday's opening bell will trigger the second failed breakout above the July 2018 high at $219, setting off additional sell signals that could drop Facebook stock into $200. Price action around that critical level should be instructive, with a mea culpa and action plan possibly inducing boycott organizers to back off. However, given skepticism after Zuckerberg's conciliatory weekend comments, much lower prices could easily follow.
The Bottom Line
A rapidly growing boycott movement puts Facebook in the hot seat just in time for the 2020 presidential election.
Disclosure: At the time of publication, the author held Verizon shares in a family account but held no positions in the other aforementioned securities.