With 2021 right around the corner, the relative strength of Facebook’s stock (FB) is declining as threats to break up the company gain traction. The social network will be facing strong headwinds in the new year, but it’s proven that it can weather the storm after coming out of the high-profile, but largely symbolic, advertiser boycott this summer with barely a scratch and has even accelerated revenue through Q3. So, is now the time to buy Facebook stock?
What is Facebook’s stock worth?
Facebook stock has a market cap of $764 billion, making it the fifth most valuable company on the S&P 500 index after Apple, Microsoft, Amazon and Alphabet. Facebook stock reached its all-time high closing price at $303.91 on August 26, even as daily user engagement began to decline after an initial pandemic spike.
On Monday, FB stock opened at $268.74, and its average price for the last 52 weeks is $233.79.
Potential threats to Facebook’s stock
Antitrust lawsuits were filed against the company by the federal government and 48 states and territories on Dec. 9, which might see Facebook unwinding the deals it made to purchase Instagram and WhatsApp. After the suits were filed, FB’s stock dropped nearly 2%.
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In what appears to be an attempt to shoot itself in the foot, Facebook has also decided that now’s the time to throw down with Apple over privacy issues that could hurt its advertising golden goose.
Is advertising all Facebook’s got?
One of the reasons the Roman Empire fell was due to its overreliance on slave labor. Likewise, if Facebook’s empire were to fall, one of the reasons might be its overreliance on advertising revenue, which currently makes up about 99% of the company’s profits. Both the beef with Apple and the antitrust lawsuits could hurt Facebook’s ad revenue, but experts point to other catalysts that could lift FB stock higher in 2021.
Assuming Facebook doesn’t have to sell off Instagram (at least, not right away), it could offer investors a clear picture of Instagram’s growth potential as a social e-commerce platform with the addition of Instagram Shops and Guides. Together with Reels, Instagram is doing its best to stay relevant to Gen Z users and keep them from straying to TikTok and Snap.
Let us not forget that virtual reality is the future, because Facebook sure hasn’t. Research and Markets predicts that the global AR and VR market could expand at an annual growth rate of 42.9% in the next decade, and Facebook is in a position to profit from that trend with its Oculus Quest VR headsets that require neither a phone nor a PC. In May, the company announced the sale of over $100 million in VR content, laying the groundwork for its VR platform that might virtually link users in the future.
Wherever your morals lie in terms of Facebook’s monopoly (along with Google) of the advertising market, the fact remains that Facebook is too big of a force for advertisers and investors to ignore, especially as we come out of the pandemic recession and advertisers begin to spend more.
Finally, it’s too soon to make strong predictions, but Facebook could bring in some future revenue as a result of its current dabbling in cryptocurrency. On Dec. 1, the Libra Association renamed itself the Diem Association with a planned value pegged to the dollar. Facebook hopes to launch its cryptocurrency in January.
What do experts say about investing in Facebook now?
Experts say meh. Even with the looming antitrust lawsuits, analysts are largely shrugging their shoulders at the possibility of a breakup. They’re either confident in Facebook’s future acquisitions or predict that Facebook would get another fine rather than a forced breakup.
In addition, antitrust lawsuits don’t happen in the space of a few months. It took three years out of Microsoft’s life from suit to settlement, and the Justice Department’s antitrust case against Google, filed in October, won’t go to trial until September 2023. In the short-term at least, analysts say that investors don’t necessarily need to worry about the breakup. On the other hand, some, like Investopedia contributor Alan Farley, say that Wall Street is asleep at the wheel, focusing on Facebook’s ad revenue and not on the growing headwinds. Farley predicts a tough year with weak returns in 2021.
Some experts even argue that a potential breakup could be good for shareholders who would get shares in the separated entities. This way, investors could have access to faster-growing, undermonetized Instagram and Whatsapp, two apps whose revenue is poised to grow, without dealing with Facebook itself, which is constantly getting into political trouble.
“Wall Street analysts think this FANG stock still has a long growth runway and provides unmatched value to advertisers. Facebook has proved its mettle during an unprecedented economic downturn,” writes Jed Graham in Investors.com. Graham also points out that Facebook’s stock has an excellent IBD Composite Rating of 94. “All that potential makes it dangerous to bet against FB stock, even as it faces a long antitrust battle. Yet investors who want to bet on Facebook should wait until it again demonstrates its resilience by reaching a proper buy point.”
The bottom line whether you’re bullish or bearish is that it’s perhaps not the best time to buy Facebook stock, but if you do, get ready to play the long game.