Facebook (NASDAQ:FB) stock has always been a bit volatile. That isn’t unusual since it’s a pioneer in a new market sector.
You see the same thing happen with its FAANG stock compatriots. Some have normalized their volatility by building out their businesses and maturing. But all the same, there’s still a bit of mystery as to how far some of these companies can carry their dominance and how wide they can make their moats.
For example, until Amazon (NASDAQ:AMZN) got its Amazon Web Services (AWS) cloud business printing money, every quarter was a roll of the dice, since AMZN doesn’t put money aside for a rainy day. And its aggressive pricing to grab market share meant sales growth was crucial, rather than revenue growth.
The same can be said of streaming company Netflix (NASDAQ:NFLX). Everyone holds their breath to see if NFLX will hit its subscriber growth numbers every quarter, knowing that at some point, growth will have to slow down.
FB has nearly 2.5 billion users across its various platforms — Facebook, Instagram, WhatApp, etc. In the early days (a relative term since the company is just 15 years old), it was about monetizing its massive base of free users. And that got more complicated than most people expected.
At first, the technology didn’t allow the platform to effectively or efficiently monetize users, and FB stock suffered. But then the technology caught up to founder and CEO Mark Zuckerberg’s vision and it was off to the races.
Then the privacy issues started to set in. And they reached a significant volume last year when there was talk about how FB stock was selling data to third parties and mining its platforms’ customer data as part of its business model.
On top of that there was the fact that the Russians and others were influencing U.S. voters by setting up sites and using FB data to mine the people they needed to influence. This drew a firestorm of reaction not only from Facebook’s users but also from the U.S. and European governments.
While upsetting users is one thing, upsetting governments is something entirely different. It needed to do something. And what it has done is the latest reason the stock swooned. FB decided to beef up its platforms’ security. So, instead of investing in growing the business, it invested in building out its security on its platforms.
This hurt its quarterly numbers, and bad numbers combined with government pressure sent investors running. But its recent Q4 numbers blew away expectations, and FB stock has soared 28% year to date.
Right now, my Portfolio Grade has FB stock at a C rating. All this recent good news is certainly encouraging, but Facebook has to put some more solid quarters under its belt before it is back on a solid growth track.
Louis Navellier is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor, Breakthrough Stocks, Accelerated Profits and Platinum Growth. His most popular service, Growth Investor, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
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