Market Direction: BULLISH alert
issued 2/15/2018
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Is Facebook a Good Stock to Buy?
Facebook
Inc. appears to be bulletproof to the controversies that have swirled around
it.
The social network reported blowout first-quarter earnings
Wednesday, with total revenue growing 49% to nearly $12 billion and
net income of $4.9 billion. Even as a mature company facing public backlash,
Facebook FB, +0.00% managed to increase its revenue
growth, an astounding feat.
Beyond
finances, it does not appear that the #DeleteFacebook campaign started by some
users after the Cambridge Analytica news had much of an impact. Facebook said
its daily active users grew 13% in March to 1.45 billion on average, and
monthly active users grew 13% to 2.2 billion. That was only a slightly slower
pace than in the December quarter, when both daily active users and monthly
active users both grew 14%.
In
after-hours trading, Facebook stock jumped nearly 7% on its positive earnings
results. Shares had declined 9.5% in 2018 amid all the concerns, while the
S&P 500 index SPX, +0.18% has dropped 1.3%.
This
quarter may not be the ultimate test of the fallout from the Cambridge Analytica scandal, however, or from Facebook’s big changes to its platform and
algorithms, which now de-emphasize passive reading for a focus on interactions
with friends. Facebook has predicted that users will spend less time on the
service as a result of the newsfeed changes, and changes are likely to be
gradual.
“This
quarter, we’ve continued shifting from passive consumption to encouraging
meaningful interaction. It’s still early but we’re starting to see some signs
that this is working,” Facebook Chief Executive Mark Zuckerberg said in
Wednesday’s conference call. “Some types of sharing are increasing even as
passive consumption of video is down.”
This
shift, in addition to the political issues over user data privacy and the role that
Facebook played in the 2016 presidential election, has fueled
concern that ad revenue would decline. Zuckerberg said that instead, some users
are now using its “Watch Party” tab and watching videos with friends.
In
its conference call, the company also said it expects to see some impact on
user growth in Europe, due to the General Data Protection Regulation, or GDPR,
which is set to take effect in the European Union in May. The new laws will
give consumers the right to opt out of emails or any digital services and also
know if they were hacked, among other rights.
“We
expect that European MAU [monthly active users] and DAU [daily active users]
may be flat to slightly down sequentially in Q2 as a result of the GDPR
rollout,” Facebook Chief Financial Officer David Wehner told analysts. “While
we do not anticipate these changes will significantly impact advertising
revenue, there is certainly the potential for some impact and we will be
monitoring this closely.”
Should antitrust laws be enforced against the tech
giants' monopolies?
Another
potential issue is whether or not the U.S. will instill any regulation of
social networks, as was discussed during Zuckerberg’s testimony on Capitol Hill, and what
kind of impact that could have on usage. Zuckerberg has repeatedly said that he
supports regulation like the Honest Ads Act, and Facebook will be bringing
changes required by the GDPR to all of Facebook, not just in the EU.
Bullish
analysts and investors were mostly impressed that Facebook’s finances seemed to
be immune to the onslaught of issues. Daniel Ives, head of technology research
at GBH Insights, said that the quarter “should give the bulls finally something
to hang their hat on after the company (and its investors) have just gone
through the darkest chapter in Facebook’s history.” Ives noted that the results
provided a relief to investors, but he added that “this will be a long three to
six months ahead to steer through this storm.”
The
bears believe that Facebook’s reckoning will come, possibly later this year.
“While
the company’s revenue growth trends were positive on the quarter and are
probably slightly better for the year than we previously anticipated,
longer-term revenue expectations are unchanged,” wrote Brian Wiesner, an
analyst with Pivotal Capital, who has a sell rating on Facebook, in a note to
clients. Wiesner is looking for Facebook’s total revenue growth to slow to
about 37% in 2018 and then 25% in 2019.
Facebook has warned investors about slowing growth for the
past year or so, but it still has yet to really see a big slowdown.
With so many big changes going on, it seems likely that the world’s largest
social network will take some sort of a hit, so investors should be prepared
for the worst and be pleasantly surprised if Facebook continues to bat away all
these issues.
The all-time highs since our initial
recommendation to go LONG
this market. Here is how the markets have performed:
Stock Market
Direction Recommendation (2/15/2018)
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Dow
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up 599.98 points a 2.38% gain
|
2/27/18
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Nasdaq
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up 181.66 points a 2.50% gain
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3/13/18
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S&P 500
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up 70.70 points a 2.59% gain
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3/13/18
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Related Link: http://www.stockmarket-direction.com/
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