Facebook (NASDAQ:FB) hit a home run when the company announced its dating feature in the U.S. markets. Match Group (NASDAQ:MTCH) will no longer enjoy the absence of competition in the online dating market. Facebook has a huge user base and now has the chance to leverage Instagram alongside Facebook and the Facebook Dating app.
Facebook will help its billions of users find a match based on common interests in events, groups, and hobbies. It will even integrate Instagram so that users may include such posts on their Facebook dating profile. The “Secret Crush” lists allow users to add both their Instagram followers and their friends. By the end of the year, users may add Instagram Stories.
Dating Faces Safety Concerns
After the data leak, users might express skepticism over Facebook Dating safety. But users must opt in to this new feature. The Dating profile is also separate from a user’s main profile. The fundamental difference between Facebook and this Dating feature is that users may choose to get matches with friends, friends of friends, and people not in the friend circle.
Investors recognized the threat Facebook has on the online dating market. Last week, Match stock fell ~5% to $81.47. The chart watchers saw a “double top” at around $90 on the charts.
Government Scrutiny Intensifies
On Sept. 6, New York State Attorney General Letitia James said she would lead an investigation against Facebook for antitrust issues. “Even the largest social media platform in the world must follow the law and respect consumers,” she said. “I am proud to be leading a bipartisan coalition of attorneys general in investigating whether Facebook has stifled competition and put users at risk.”
The bad news for investors is that Facebook may have to settle without admitting guilt. The government gets paid but the end-users ultimately pay for the damages.
Recall that on July 24 Facebook agreed to a settlement with the Federal Trade Commission. It will pay a record $5 billion fine over its privacy policies. This amount represents 9% of its 2018 revenue. Still, the company generated revenue of $16.9 billion in the second quarter alone. Much of its revenue is from advertising. So long as add spend from U.S. and Canada grows, Facebook can afford to settle with the government.
EU Investigates Facebook
Meanwhile, EU antitrust regulators are scrutinizing Facebook’s planned Libra currency launch. The EU is worried that the cryptocurrency may shut out rivals and restrict competition through the use of information and consumer data. Sadly, Facebook did not even launch the currency, so the investigation may prove premature. Besides, there are many other well-established payment systems. Visa (NYSE:V), MasterCard (NYSE:MA), and PayPal (NASDAQ:PYPL) all offer some form of electronic payment options.
The EU’s pre-emptive strike against Facebook is unwise. It may deter the social networking giant from entering the market. This would pave the way for a China-based firm to come in instead. Conversely, the U.S. banks and credit card companies may get a head start if the EU delays’ Facebook’s entry in the cryptocurrency market.
Valuation Here and Now
Investors who forecast a ~20% CAGR in a 5-year DCF growth exit model will arrive at a fair value of $196-$273 for Facebook stock. At a 9.5% discount rate, the implied fair value is $228. Its intrinsic value based on future cash flow is even more bullish. Per Simplywall.St, FB stock is more than 20% discounted from its future cash flow and has plenty of upside for shareholders ahead.
On Wall Street, Facebook stock has a $234 target average among 36 analysts tracked by TipRanks.
Facebook continues to attract healthy advertising spending. It faces no immediate competition from other social networking sites, either. Investors will do well holding or accumulating FB stock at current levels.
Disclosure: As of this writing, the author did not hold a position in any of the aforementioned securities.
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