While Facebook Inc. (FB) has sparked the most concern out of the high-flying FAANG stocks this year, one lead internet analyst calls the social media giant his top pick out of the group of U.S. tech titans, expecting the firm to come back stronger than ever from its data privacy scandals, as outlined by CNBC.
On Thursday, the Nasdaq Composite Index fell nearly 2%, alongside slightly more modest losses for other major blue chip indexes. As uncertainty over trade fears, rising interest rates, heightened regulation and other broader macroeconomic trends inject volatility into the ten-year bull market and weigh on the tech sector, in particular, Facebook has been a subject of confusion for investors, according to RBC Capital Markets' analyst Mark Mahaney.
(For more, see also: Facebook Could Be Fined $1.6 Billion in Europe Over Data Breach.)
New Monetization, Products, and Security to Boost Social Media Giant
While investors are "pretty comfortable with" other FAANG names, given Netflix Inc. (NFLX) and Amazon.com Inc. (AMZN) had great entry points earlier this year and Alphabet Inc. (GOOGL) remains a "compounder," the "big question mark" for tech surrounds Facebook's outlook for revenue growth deceleration and margin compression, Mahaney told CNBC's "Power Lunch" on Thursday.
Earlier this year, a headline data scandal involving political consulting firm Cambridge Analytica cost Facebook tens of billions in market capitalization. While Zuckerberg's testimony helped partially revive shares, news such as another hack involving 50 million accounts reported last week has fueled a more bearish forecast. Mahaney noted that while the recent data breach "probably put them back a few steps," Facebook is using its cash mound to double capex and address "solvable problems over time."
"I think there's a couple of pieces that are going to come together in terms of new monetization, new products, and greater platform security — and that package, when it comes out, that's going to be the asset to buy, but I think you can buy it here," stated the RBC strategist. He expects the Silicon Valley giant to find ways to better monetize Facebook Messenger and WhatsApp, as well as Facebook and Instagram stories by "digging deep into more R&D spend and sales and marketing spend."
Moving forward, investors shouldn't expect to profit off Facebook for the next 30 days, but in the 12-month horizon, the stock poses the best risk/reward ratio out of the FAANGs, according to Mahaney.
Closing down 2.2% on Thursday at $158.85, Facebook stock reflects a nearly 10% loss year-to-date (YTD), sharply underperforming both the S&P 500's 8.5% return and the Nasdaq's 14.1% gain over the same period.