Social media giant Facebook Inc. (FB) has lost tens of billions of dollars in market value this week as the tech giant battles a series of negative headlines surrounding a recent personal data scandal. (See also: FAANG Shorts Gain $980M in Tech Sell-Off.)
Shares of the Menlo Park, Calif.-based company are now trading at their cheapest level since the firm hit the public markets in 2012 at around 18 times its 12-month forward price-to-earnings ratio. Still, over the past five years, Facebook has returned 568.2% to shareholders, compared to the S&P 500's 76.5% increase over the same period.
While FB shares have skyrocketed more than fourfold since its initial public offering (IPO), its net profits have outpaced that growth, increasing by more than 12 times over the same period, as noted a Financial Times story published on March 21.
Street Divided on What to Do
Despite the risks of regulatory backlash and a tarnished brand, some on the Street recommend buying shares of Facebook on the dip, downplaying headwinds facing the U.S. tech sector.
“We will see a bounce from here because there is so much positive going on,” said Tom Plumb, chief investment officer at Plumb Funds, as quoted by the Financial Times. While admitting that trade relations with China remain a risk, he continues to view tech stocks as positioned to outperform the broader market "because they are the leaders of economic growth.”
Not all are so bullish on Facebook's future. Amid the most recent scandal with Cambridge Analytica, in which the data analysis firm allegedly helped the Trump campaign advertise with data illegally taken from Facebook, the bears expect the social media pioneer to lose users and face heightened regulatory pressure as it struggles to combat continued exploitation of personal data on its billions of users.
In the latest quarter, the Silicon Valley giant posted its slowest quarter-over-quarter (QOQ) daily user growth and its first decline in daily active users in the U.S. and Canada, losing a combined 700,000 people in the two countries. While Facebook CEO Mark Zuckerberg has attributed the deceleration to changes including fewer viral videos in the recent period that reduced time spent on the platform, others see it as a signal of Facebook's waning dominance.
While the threat of Snap Inc. (SNAP) has been largely offset with the sweeping success of Facebook's Instagram platform, proving a hit among advertisers, Facebook has been barraged with a wave of privacy issues and other scandals, coupled with daily news coverage blasting the company for failing to thwart Russian interference in U.S. elections, and neglecting the harmful effects of social media time on users, particularly among young adults.
Investors may find it best to remain on the sidelines throughout a spike in uncertainty, taking close note of how Facebook manages through the recent crisis, recommends Goldman Sachs analyst Heath Terry. If things go wrong, the prospects of severe regulatory measures could put a significant damper on Facebook's long-term growth story. (See also: Facebook Is Facing Its Moment of Truth: Goldman.)