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Perfect storm for Facebook share price

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It is a battle that Facebook chief executive Mark Zuckerberg can ill-afford to lose. In July 2018, Facebook share price suffered a brutal decline, falling from USD218 to USD172. The devastating plunge of Facebook share price wiped out at least USD140 billion market capitalization from Facebook’s valuation. The frightening meltdown was largely attributed to its poor Q2 earnings and also a series of bad news. Since then, Facebook share price never looked back, continuing to roll down the slope.

For a social media giant like Facebook, its stock performance will always be measured by revenue growth. Indeed, for Q2’18, the revenue was an impressive 43% increase year-on-year. Thus, widespread concerns over its slowing growth had been grossly misplaced and blown out of proportion. For Q3’18, Facebook continued to achieve great revenue growth, recording 33% increase year-on-year.

Apart from its outstanding earning performance, another significant investment merit of Facebook is that it has zero long-term debts. For a technology company, this is indeed a very unique advantage because it does not need to leverage to fund its growth and investors do not need to worry about insolvency issues for Facebook. To put the icing on the cake, Facebook’s business is also very cash generative, with free cash flow (FCF) of USD 4.1 billion and cash and cash equivalent of USD 9.6 billion in Q3’18.

Facebook

Given the financial strength and performance of Facebook, it appears to me that there is simply no justification for its dismal stock performance. Nevertheless, the nightmare stock performance had given investors plenty of sleepless nights. On the back of an epic USD24 billion shares buyback program, should investors look at the big picture and buy on the dip? Or is the end-game nearing for Facebook?

In my point of view, Facebook is at an exciting cross-road as it had not even monetized its acquired businesses, Whatsapp and Instagram. Once it unleashes these game-changers, all hell would surely break loose. Current slew of bad news are merely distractions that are unlikely to stunt Facebook’s long-term growth.

Facebook share price in crisis of confidence?

2018 would be remembered as a year of revelation for Facebook as it becomes synonymous with “fake news”. Out of nowhere, Facebook is plagued by negative publicity as the social media behemoth faces scandals after scandals over its loose protection of user data and vague data privacy settings. At the centre of the storm is the dispute over the alleged sharing of personal data without users’ consent.

In early 2018, Facebook’s reputation took a severe dent over the Cambridge Analytica issue. Subsequently, Facebook came under intense pressure as Zuckerberg confessed that the social media platform had been used by people to spread racial tensions in Myanmar. Then in September, the world had been stunned by news of Facebook’s announcement that 50 million Facebook accounts had been hacked.

All these incidents raised many pertinent questions that have yet to be adequately addressed by the management. Make no mistake, Facebook is [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

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Updated: January 11, 2019 — 1:57 pm

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