The last few weeks have been tough for several blue chips and Facebook (NASDAQ:FB) was no exception. Although it hasn’t been a name directly related to the U.S.-China trade war, the conflict’s broader impact cannot be ignored. Social media firms depend on a robust economy as anyone else. Thus, the specter of a potential downturn hurt the Facebook stock price.
But the underlying company also has its own issues. Throughout the past year or so, Facebook has aroused multiple controversies. First and foremost, we had the Cambridge Analytica fiasco. Later, public outrage spiked when the social media site allegedly allowed major corporations to read users’ private messages. Not surprisingly, FB stock dropped to multi-year lows during that period.
And just to cover all the negative bases, Facebook even got embroiled in a nasty housing discrimination scandal. Honestly, it’s a small miracle that Facebook stock is still a thing.
But because it continues to operate seemingly without penalty, powerful voices have become increasingly angry about their opposition. For instance, Senator Elizabeth Warren posted her complaint on Twitter (NYSE:TWTR) that the Federal Trade Commission essentially gave Facebook a slap on the wrist regarding its privacy violation fee. Although the FTC handed a Facebook a record-breaking $5 billion fine, the Facebook stock price jumped higher on the news.
It’s the optics of such incidents that give fuel to the calls for breaking up big tech.
Certainly, the many issues that are converging on FB stock now make it a risky play in the near term. The weak price action at key technical levels suggest a downturn. But if so, I’d consider a position for three reasons:
FB Stock Has No China Exposure
Many tech plays slumped badly when Washington and Beijing escalated their trade-related feud. Moreover, global markets are very jittery because the U.S. and China represent the biggest two economies. As I mentioned above, even a non-directly related entity like Facebook stock tanked.
However, once the market settles down a bit and digests the news, investors will recognize the obvious: FB stock has virtually no exposure to China. As a communist government, China has multiple censorship protocols at hand. And so far, Facebook hasn’t penetrated this market, at least not on an official level.
That makes the company’s user base and growth all the more impressive. During the second quarter of 2019, Facebook reported over 2.4 billion monthly active users (MAUs). To put this into perspective, 31% of the world logs onto its website or app.
In many ways, the social media stalwart doesn’t really need China. With pedestrian MAU growth in North America and Europe, Facebook has merely shifted demand to Asia and the rest of the world. And that strategy shift is working perfectly. That’s one reason to stay patient with Facebook stock.
Facebook Stock Enjoys Dominant Demographic Coverage
Although I like to say that Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) owns the internet, Facebook can also make a case here. While the Google search engine is ranked top in the world, the social media firm covers the activities for which Google users search.
For instance, with its two-billion plus network, if you want to find somebody, Facebook is your best bet. Moreover, if you want to start an event, or a grassroots campaign, or promote your business, its platform lends itself to both engagement, mass advertising and scalability.
Furthermore, with its acquisition of Instagram, FB levers a comprehensive demographic coverage. Prior to the Instagram deal, Facebook dominated the “meaty” part of the millennial demo, around ages 25 to 34. On other hand, rival Snap (NYSE:SNAP) dominated the teens to young twenties crowd.
But with Instagram utilizing similar features to Snapchat, Facebook has made significant progress with the young. Moreover, I’ve argued that as young folks age, they begin to see Facebook’s practical value. Thus, over the long run, you’re much safer with FB stock than other social media sites.
Finally on this point, the social media site doesn’t necessarily have an overbearing demographic bias. You can start a high school reunion for people in their 50s and 60s and it wouldn’t be weird. If you did this on Snapchat, it definitely would be.
Big Tech Is Also Too Important
While many institutions are panicking over the trade war crisis, this matter has taught us an important lesson. Globalism has its benefits, such as enhancing individual opportunities and lower-priced goods due to economics of scale. But it also has its disadvantages.
One of the most critical is that we can’t always trust the intentions of our international partners. That’s really the case with China. Although the Trump administration handled this matter indelicately, he certainly had the upper hand morally. For years, China has gotten away with corporate and intellectual property theft.
Additionally, China has made no qualms about rivaling U.S. dominance in the technological sector. Therefore, we come to an uncomfortable realization. Yes, Facebook has committed wrongs. If the geopolitical environment were different, perhaps we should consider breaking up Facebook stock.
But we’re not in that utopia. Instead, we’re smack dab in the middle of a tech cold war. And so, we must learn to deal with the unfairness of FB stock. Facebook is a bully, but at least it’s our bully.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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