Here's What To Expect From Facebook (FB) Stock In 2019
Zacks Investment Research | Dec 11, 2018 06:07AM ET
Facebook’s (NASDAQ:FB) 2018 might be a year investors want to forget. But the social media powerhouse will hopefully use it as a lesson to help move forward. The question now is what should we expect from Facebook in 2019?
Overview
Facebook and its top executives, CEO Mark Zuckerberg and COO Sheryl Sandberg, have been put through the wringer this year. The company has faced mounting questions about its handling of user data and its role in the spread of “fake news” and misinformation. On top of the multiple company profiles from the New York Times and the Wall Street Journal, Facebook’s top brass has testified in front of members of Congress and been fined the maximum legal amount by the UK privacy watchdog.
In fact, just last week, UK Parliament released a ton of internal Facebook emails, which showed Zuckerberg and other executives pushing tactics to slow down competitors and figure out the best ways to monetize user data. Facebook is of course not alone.
Google (NASDAQ:GOOGL) CEO Sundar Pichai testified before the House Judiciary Committee Tuesday. Lawmakers asked questions about everything from privacy concerns and potential political bias to the firm’s plans for censored search in China.
Meanwhile, the likes of Twitter (NYSE:TWTR) and many other companies with access to user information could face backlash. But investors should remember that user data and information is everywhere from targeted coupons at places such as CVS (NYSE:CVS) and Target (NYSE:TGT) to apps like Domino's Pizza (NYSE:DPZ) . Therefore, in our digital and mobile device based-world, what is Facebook’s problem at the moment could soon be a much larger referendum on our privacy.
Outlook
We will have to table both the Facebook-specific and the larger user data discussions until we know more about what the U.S. government might do that could potentially harm Facebook. What we do know right now is that Facebook itself plans to spend billions of dollars in order to curb user data and “fake news” problems.
Facebook executives project that the company’s operating margin will slip into the "mid-30s on a percentage basis" over a more than two-year period—and we have already seen this decline begin. The social media company’s operating margin fell from 50% in the year-ago period to 42% in Q3.
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Looking ahead, Facebook’s Q4 revenues are projected to jump 26.4% to reach $16.4 billion, based on our current Zacks Consensus Estimate—Facebook’s Q3 revenues jumped 33%. Meanwhile, the firm’s fiscal 2018 revenues are projected to surge over 36% to reach $55.33 billion. Peeking ahead to 2019, Facebook’s revenues are expected to surge 23.8% above our 2018 projection to touch $68.51 billion.
Clearly, Facebook’s top-line growth projections are relatively solid. But the company’s earnings outlook appears to be headed in the wrong direction. The company’s adjusted fourth-quarter earnings are expected to fall 1.36% from the year-ago quarter. FB’s fiscal 2018 earnings are still expected to pop 19.6% based on impressive earlier 2018 bottom-line growth.
However, the firm’s fiscal 2019 earnings are projected slip 0.25% below our 2018 estimate. Plus, the company has earned 15 downward earnings estimate revisions for 2019 over the last 60 days, compared to just four positive changes.
Bottom Line
Zuckerberg has said that fighting platform manipulation problems will take years and billions of dollars to fix. And Facebook’s future is harder to gauge amid the threat of possible government intervention. Yet, despite the company’s increased spending, which looks set to impact earnings in 2019, Facebook holds no long-term debt at the moment.
Facebook also plans to push deeper into live streaming video in the age of Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN) . Plus, the company will likely become even more attractive to advertisers, even if its problems persist, because ad-supported outlets continue to fade. And let’s not forget that despite Facebook’s slowing user growth in some key regions, Facebook reaches more than 2.6 billion people across its platforms every month.
On top of that, Facebook stock closed regular trading Tuesday at $142 a share, which marked a 35% downturn from its 52-week high of $218. FB stock is also trading near its all-time low forward P/E at 19.3X, which marks a big discount compared to its industry’s 28.7X average. More importantly, Facebook has traded as high as 90X over the last five years and 31.5X in the last 12 months.
Therefore, FB stock might be a candidate for a 2019 comeback. But many factors that could help facilitate a resurgence are outside of Facebook’s control.
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Zacks Investment Research
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