One Thing That Could Slow Facebook (FB) Stock Down in 2018
There are only a few more weeks of trading left in 2017, and as investors start to close the book on another bullish year for the stock market, it is clear that technology behemoths have dominated Wall Street. Of these, one of the year’s strongest stocks has been Facebook, Inc. FB.
The market established Facebook as king of the social media world years ago, but in 2017, the Mark Zuckerberg-led company took another step in establishing itself as a diversified leader in the tech sector. The stock is now widely regarded as a must-own internet play, and recent investments seem poised to keep Facebook on the cutting edge for years to come.
Shares of this Silicon Valley giant have gained more than 55% year-to-date. Based on our current consensus estimates, we expect the company’s fiscal 2017 to conclude with earnings growth of 37% and revenue growth of 45%.
But it has not been entirely smooth sailing for Facebook in 2017. Indeed, the social media platform found itself embroiled in several of its fiercest public relations scandals on record—including one that threatens to slow the red-hot stock down in 2018.
Throughout the year, Facebook has been forced to answer questions related to the use of its website to spread disinformation during the 2016 presidential campaign cycle. As it turns out, a large part of Russia’s concentrated efforts to interfere in the U.S. election took place on public internet forums, and new findings suggest that many American Facebook users were subjected to the country’s propaganda campaign.
On top of this, increased public scrutiny over data security, punctuated by the devastating Equifax EFX breach this year, has the entire internet industry rethinking how it protects its users’ private information.
Facebook has already received criticism—from lawmakers and the general public—for its failure to properly vet content on its website. Now, the company is slated to increase spending on security and double down on its initiatives to prevent abuse.
“Our community continues to grow and our business is doing well,” Zuckerberg said in Facebook’s latest earnings release. “But none of that matters if our services are used in ways that don't bring people closer together. We're serious about preventing abuse on our platforms. We're investing so much in security that it will impact our profitability. Protecting our community is more important than maximizing our profits.”
Management would expand on this in its most recent earnings call, detailing plans to increase total expenses by 45% to 60% in 2018. While some of that new spending will go towards ongoing video content, augmented reality, and artificial intelligence projects, a sizeable chunk of it will be dedicated to security investments.
“We're doing a lot here with investments both in people and technology. Some of this is focused on finding bad actors and bad behavior. Some is focused on removing false news, hate speech, bullying, and other problematic content that we don't want in our community,” Zuckerberg added.
“We already have about 10,000 people working on safety and security, and we're planning to double that to 20,000 in the next year to better enforce our Community Standards and review ads.”
In short, the biggest thing weighing on Facebook shares in 2018 will be Wall Street grappling with the fact that the company will not be as profitable as it probably could be. Nevertheless, Facebook should still witness solid top and bottom line growth next year.
Based on our latest consensus estimates, Facebook is expected to post full-year 2018 earnings of $6.55 per share and revenues of $53.90 billion, which would represent year-over-year growth rates of +12.48% and +34.16% from 2017’s projected totals.
How exactly will investors react to the company’s increased spending? Only time will tell.
Want more stock market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!
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