At present, social media giant Facebook (NASDAQ:FB) has two faces. On one side, the longer-term narrative for FB stock remains well intact — in my view. I’ll touch on a few key points below. However, the other side is that in the nearer term, the momentum in FB stock isn’t quite impressive.
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On the Thursday session, the benchmark investment indices received a much-needed lift. Most notably, the S&P 500 index rallied over 3% from this week’s lows. Additionally, several shares of companies in industries ranging from technology to energy saw significant gains. Within this positive environment, Facebook stock gained 2%. Further, against the closing low of August, FB shares are up currently up over 7%.
But that’s where the good news ends, at least in the immediate time frame.
Curiously, although FB stock has enjoyed strong sessions recently, its last swing up placed it underneath its 200-day moving average. Moreover, if you pull up a six-month chart, you can see that the $200 price level has imposed resistance.
Adding to the worries is that Facebook CEO Mark Zuckerberg sold off nearly $22 million of Facebook stock in the latter half of August. Now, people shouldn’t read too much into the mere fact that an executive leaned out their company holdings. Perhaps Zuckerberg wanted to add a helipad for his estate.
But in the present context, the sale is certainly a distraction. We already have an escalating U.S.-China trade war that doesn’t seem likely to find a resolution soon. Plus, the conflict is hurting our economic stability. As such, Zuckerberg seems to be making a shrewd decision here.
FB Stock Is Worth Its Coming Discount
Of course, I don’t have a crystal ball. Zuckerberg may be overly cautious on his own equity holdings. And the technical resistance I referenced above may not follow its implications. Logically, a significant improvement in the trade war situation would help reassert the longer-term bullish case for Facebook stock.
That said, I think a market correction is inevitable. We’ve been on a record run. Sometimes, we just need to empty out the extreme speculation to enjoy the next leg higher.
Should FB stock drop lower — and I’m eyeballing the $160 level, which has held as support this year — I don’t believe investors should panic. Instead, such a discount is worth jumping on from a strategic perspective.
First, I don’t believe that recent financial concerns, such as decreasing margins, are necessarily a bad thing. When FB stock was a young, scrappy growth play, this condition may have been a bigger issue. However, Facebook has already utterly dominated social media. Even with its 2.4 billion monthly active users, it continues to add users. Of course, this growth rate has declined because the company is running out of people to convert.
Therefore, management needs to find new avenues to make the organization consistently relevant. For example, its research into machine innovation is full of potential. Also, its unprecedented human data base represents an indelible asset.
If you’re paying attention to developing technology trends, you know that deep learning is a massive market. But to compete there isn’t cheap. Thus, research and development costs have skyrocketed over the past few years.
Some analysts have taken that as a reason to dump Facebook stock because the company is disappointing on current metrics. But with some patience, I believe management’s efforts into tomorrow’s tech will pay off handsomely.
Demographics for Facebook Stock Is a “Can’t Miss” Opportunity
Another reason why investors should strongly consider buying robust dips in FB stock is demographics. One of my biggest criticisms about rival Snap (NYSE:SNAP) is that it caters too deeply toward young users. Certainly, I understand the appeal from an advertiser’s point-of-view. But what happens when those users grow up and need utility from their social media platforms?
That’s where Facebook, and by logical deduction, Facebook stock comes in. With this platform, you have access to a wide range of uses, ranging from personal pursuits to professional endeavors. It’s a great way to evangelize a meaningful social event, or to promote your small business. And if you wish to delve into the frivolities of social media, Facebook’s Instagram acquisition facilitates that desire.
Thus, I’m not particularly surprised that the idea of Facebook buying out Yelp (NASDAQ:YELP) has reemerged. Yelp is in many ways like Facebook. Specifically, it’s a peer-reviewed verification platform: its power comes from the collective social network organically cooperating toward a shared end goal.
Should Facebook buy out Yelp, I think it would be a positive for FB stock, even though it would temporarily crimp the financials. As a dominant player, all I can ask is that they maintain the hunger to improve. Facebook is doing that, and so much more.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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