Facebook Inc. (FB) stock has been battered this week as investors scorn the social media empire on its latest data scandal in which political analysis firm Cambridge Analytica allegedly used information on over 50 million users without their consent to aid the Trump campaign in the most recent 2016 U.S. presidential race. As Zuckerberg's tech titan comes off its worst week in six years, some analysts on the Street are calling FB stock a buy, suggesting that backlash against its privacy scandals and other issues are already priced into shares. (For more, see also: Facebook Sinks to Bear Market Territory on FTC Probe.)
Bulls See a 25% Rally
In a detailed report by Barron's, at least five reasons were highlighted as positive headwinds for the beaten-down FAANG stock. Barron's expects shares of the Silicon Valley media company to recover more than 25% over the next 12 months to reach $200.
Closing up about 0.4% on Friday at $160.06, FB stock reflects a 9.4% decline year-to-date (YTD), compared to the S&P 500 Index's 0.6% dip and the Nasdaq Composite Index's 4.6% increase over the same period.
Facebook's shares ended last week trading at 22 times forward earnings estimates, a fraction from just a few weeks ago and representing a 30% premium above the S&P 500. Three years ago, the stock was 140% more expensive than the index, according to the Barron's story published on March 23. As the stock becomes relatively cheaper compared to the broader market, its revenues continue to expand five times faster than revenues underlying the S&P 500, while its profit margin is three times as high.
While Facebook clearly faces more regulation in the coming period, its chief executive officer (CEO) Mark Zuckerberg has said that not all regulation is necessarily bad, and that movements such as ad transparency legislation could actually help the company. While many see the stock's 13.5% decline since news of the most recent scandal pricing in regulatory pressure, Barron's suggests that there's no major sign of a user exodus. In fact, Facebook is expected to count 30% of the Earth's population as regular users in 2018, while its Messenger, WhatsApp, Oculus and Instagram platforms continue to steal market share and ad dollars from Snap Inc. (SNAP) and Twitter Inc. (TWTR).
Analysts at Wells Fargo expect the Cambridge Analytica fallout and a new European privacy law to present a potential 2% hit to Facebook's revenues, yet they also indicate that regulation is likely already baked into consensus estimates. New profitable revenue streams should also work to offset any negative impact, while the company doubles down on fixing its problems by innovative means such as using artificial intelligence (AI) to locate and remove terror-related content, and launching Messenger Kids, a safer platform for children to connect with adult-approved contacts.
That being said, obviously not all are sold on Facebook's comeback. A #DeleteFacebook movement has gained momentum amid a wave of negative media attention, including a move by Tesla Inc. (TSLA) and SpaceX CEO Elon Musk to delete his companies' pages on the platform. Last week, Bank of America Merrill Lynch issued a downbeat note in which analysts doubted that Zuckerberg's public statements, in which he has apologized for the data breach and promised to spend many millions to regain trust, would do much to relieve negative sentiment around the company. BofA wrote that the platform could suffer a decline in usage, at least in the near term, while ad pricing growth could trail estimates. (For more, see also: Why the Facebook-Google Digital Duopoly May Be Dead.)