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Buy Facebook (FB) Stock After Q2 Earnings Despite Antitrust Concerns?

Benjamin Rains

Facebook FB shares touched a new 52-week intraday high Thursday, only to slip over 2% in morning trading. FB stock popped after hours Wednesday after the social media giant posted-stronger-than projected results as user growth remains solid.

Mark Zuckerberg’s firm was hit with a historic Federal Trade Commission fine and U.S. government regulators are watching Facebook more closely than ever. Despite these worries, should investors still buy FB stock?

Quick Q2 Overview

Facebook posted adjusted quarterly earnings of $1.99 per share, which topped our $1.90 Zacks Consensus Estimate. Meanwhile, revenue surged 28% to $16.886 billion to surpass our $16.45 billion projection. This top-line expansion came in higher than Q1’s roughly 26% growth, but does mark a downturn compared to the 30% and 40% revenue growth that Facebook had churned out over the years.

On top of revenue growth and its bottom-line beat, Wall Street was likely please to see that Facebook’s user growth has continued to hum along despite all of the negative headlines and broader privacy concerns. Both monthly and daily active user totals climbed 8% from the year-ago period to match Q1’s growth. Facebook now estimates that more than 2.7 billion people use at least one of its “Family of services” every month, which includes Facebook, Instagram, WhatsApp, and Messenger.

More specifically, its DAUs in the U.S. and Canada climbed by 2 million from Q2 2018 to reach 187 million. FB also saw this key figure jump by 1 million sequentially in the region that accounts for roughly 50% of total revenue but just 12% of total daily active users globally.  

 

 

 

 

Government Worries

Facebook’s impressive second-quarter report isn’t the only thing that Wall Street must take into account to help better evaluate FB stock going forward. Wednesday also saw the FTC officially announce Facebook’s record $5 billion fine related to the long-running investigation that began with the Cambridge Analytica scandal.

The settlement also expands Zuckerberg’s potential liability and restructured Facebook’s board of directors to help bolster privacy oversight. Facebook said that it agreed to “comprehensive expansion of our privacy program, including substantial management and board of directors oversight, stringent operational requirements and reporting obligations, and a process to regularly certify our compliance with the privacy program to the FTC.”

Furthermore, the company disclosed Wednesday that the FTC opened in June an antitrust investigation into Facebook. Plus, FB noted that the U.S. Department of Justice announced in July “it will begin an antitrust review of market-leading online platforms,” which will clearly include Facebook.

Outlook  

For now, Facebook is happy enough to pay just a $5 billion fine. Meanwhile, increased U.S. government investigation into the social media giant along with the likes of Amazon AMZN and Google GOOGL is likely to take some time and antitrust cases can prove complex. This, however, is part of the reason why Zuckerberg and Facebook have seemingly welcomed regulation.

Facebook’s CEO and the company see open compliance and regulation as vital to the firm’s long-term survival. “My broader concern is that if that doesn’t get put in place, then frustration with the industry will continue to grow,” Zuckerberg said on its conference call in reference to industrywide rules. “We’re trying to do our part to advocate for a good regulatory framework in each area.”

 

 

 

 

Aside from government intervention, which will hover in the background for some time, Facebook plans to roll out a blockchain-based payment system that will be backed by hard assets, in partnership with Uber UBER, Spotify SPOT, Mastercard MA, and PayPal PYPL. Facebook’s crypto move is part of a broader diversification plan that includes augmented and virtual reality and more.

Looking ahead, our current estimates—which will likely change in the coming days as more analysts update their outlooks—calls for Facebook’s fiscal 2019 revenue to climb 24.1% from $55.84 billion to $69.31 billion. The social media giant’s fiscal 2020 revenue is then expected to climb 21.2% higher than our current year estimate to reach $84 billion.

At the bottom end of the income statement, its full-year fiscal 2019 EPS figure is projected to dip 6.3%. But, Facebook’s fiscal 2020 earnings are expected to surge 31% higher than our current-year estimate.

Bottom Line

Facebook is currently a Zacks Rank #2 (Buy) that boasts an “A” grade for Momentum and a “B” for Growth in our Style Scores system. The company’s user base will also help it remain a digital advertising powerhouse for years to come as non-ad supported platforms such as Netflix NFLX make consumers harder to reach.

FB is also trading below its industry’s average forward P/E, as it has for some time now. Facebook stock is up 53% so far this year, so a post-earnings pullback could happen in the near-term. With that said, Facebook stock does seem to be a solid longer-term investment even amid increased oversight.

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