Facebook Takes The Stairs Towards ATHs

While shares of social media giant Facebook (NASDAQ: FB) have lagged the performance of the tech-heavy NASDAQ index in 2019, they’ve had a very promising fall season and look good going into the last 3 weeks of the year. They’ve taken a very orderly route north in the past two months and have tacked on about 15% in returns since the start of October. As they approach a significant looking technical set up, they’re less than a 5% move away from annual highs and certainly worth a look as momentum is with them.

After a very tough second half to 2018 which saw the stock fall more than 40% into the end of the year, shares have bounced back as the company has steadied the ship and gone back to basics. They reported their Q3 earnings at the end of October and smashed analyst estimates for revenue and EPS.

CEO Zuckerburg was his usual understated self when he remarked: "we had a good quarter and our community and business continue to grow." However double-digit gains across all metrics is an impressive retort to those who felt the company was on the ropes last year and have set the stock up well for a strong close to 2019.

Navigating Controversies

Things haven’t always looked so steady though. The Cambridge Analytica scandal that broke early last year left Facebook with a bloody nose while more recent accusations surrounding Facebook’s lax fact-checking and hate speech policies have continued to add to the pile of negative headlines the company’s been getting.

Facebook’s stock is the worst performing out of the much-reported on FAANG group over the past two years. This group of 5 tech leaders (Facebook, Amazon, Apple, Netflix, and Google) have been viewed as a barometer of the industry for much of the decade. 

Now the company has to deal with antitrust concerns as Big Tech becomes the Big Oil of the 21st century. With a market cap of over $500 billion, it’s not surprising they’re attracting this kind of attention but if they can continue to manoeuver their way through these challenges, shares remain attractive.

As recently as last October, this column noted that “in the month of June, over 2.7 billion people used one or more of Facebook’s platforms (Facebook, Instagram, WhatsApp, or Messenger). This means that consumers may bemoan the lack of privacy, but they’re still visiting the platforms. In fact, people often express their complaints about Facebook on … Facebook. Call it fear of missing out (FOMO), the desire to get validation for our life accomplishments, whatever the motivation, people are continuing to use the company’s social media platforms and that’s unlikely to end anytime soon.”

Shares Remain Attractive

Indeed, since the start of 2019, shares of Facebook are the second-best performers out of FAANG, easily beating all but Apple’s. Investment firm Stifel has been among those to sit up and take notice and the firm raised their rating from ‘Hold’ to a ‘Buy’ on Thursday. Noting, in particular, the strong growth outlook, their analysts have given the stock a price target of $240 which would be well above all-time highs. Earlier this week, Piper Jaffray was out with a fresh ‘Outperform’ rating for Facebook shares and a price target of $230.

It feels like Wall Street has become somewhat accustomed to the negative headlines and is able to, by and large, ignore them, focusing instead on the bottom line. If it’s true what they say and what doesn’t kill you actually makes you stronger, then Facebook’s future is bright.

The 15% fall from July’s high through September has all but been recovered as shares have hugged a solid rising trend line in the two months since. There is some technical resistance up ahead in the form of a downtrend from 2018’s all-time highs but if nothing else this will force the stock to show its hand. Either it’s stronger than ever and worthy of the recent price targets and ratings or it’s not.

18 months after a controversy that would have toppled a lot of other companies, everything suggests the former is the case.