Facebook stock forecast: is the bullish trend over?

Facebook’s Q3 results missed revenue predictions after leaked documents and iOS changes

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Facebook, currently facing a turbulent time, has revealed mixed Q3 results, with revenue missing analysts’ predictions but monthly active users and earnings per share (EPS) in line with forecasts.

After the recent leak of thousands of documents that appear to put the social media giant in a bad light, chief executive Mark Zuckerberg had to address claims by whistleblowers concerns during Facebook’s quarterly conference call.

At the same time, updates to Apple’s iOS haveaffected Facebook’s advertising revenue, its main source of income. 

Zuckerberg insisted the social media company was about to enter a new phase of growth, “dedicating significant resources” towards its virtual reality products. The company plans to separate these earnings in next quarter’s results.  

Facebook, now based in California, was founded in 2004 by roommates at Harvard University in Cambridge, Massachusetts, for fellow students. By 2006, Facebook opened its membership beyond students and now has 2.9 billion monthly active users. The company also owns what it describes as a family of apps, including Whatsapp, Messenger and Instagram.

Mixed Q3 results

Facebook’s third-quarter results showed revenue at $29bn, a 35% increase year-on-year. This is significantly slower growth than the 56% increase seen in its Q2 results.

Facebook missed revenue predictions from analysts, but the slow growth was forecasted. Zacks Investment Research, a firm that focuses on stock analysis, predicted Facebook’s revenue to be at $29.55bn. Investopedia also forecasted a slower growth compared to the past two quarters, with Q3 revenue predicted at $29.5bn.

Facebook’s monthly active users (MAU) is a key metric that measures the size of their userbase. The social media company’s MAU for this quarter reached 2.91 billion, an increase of 6% compared to Q3 last year. This met analysts’ predictions, according to Investopedia. Similar to Facebook’s revenue, it reported MAU to hit 2.9 billion, a year-on-year increase but at a slower rate than previous quarters. Zack’s Investment Research predicted a 6.7% increase year-on-year with MAU at 2.92bn.

Earnings per share (EPS) was higher than analysts predicted. Analysts at Yahoo Finance forecasted EPS at $3.17 and Investopedia predicted it at $3.19. Facebook revealed its EPS was 9.4% better than this, at $3.22.

Nasdaq reported that the revenue is likely to have been driven by the growing userbase as well as innovation in its advertisement product. However, Bloomberg discovered in recent internal documents that Facebook is losing a key userbase.

Facebook and teenagers

Facebook is losing out among teens
Facebook is losing out among teens. Credit: Bloomberg

In March, a group of Facebook researchers looked into the platform's usage and found it was losing its teen userbase. The research analysed how long people were spending on the platform and discovered a 16% year-on-year decrease for people aged 13 to 17.

In 2020, this age group was spending the least amount of time on Facebook, with the average daily user on the platform for just 30.8 minutes, compared to 57.1 minutes for people older than 30. While 13- to 17-year-olds’ daily usage dropped from 30.8 minutes to 25.9 minutes this year, the over 30s’ usage increased marginally to 58 minutes.

The number of messages teenagers were sending on the social media platform was falling as well. The data revealed that while the average daily user aged 18 to 29 sent just 7.6% fewer messages in 2021 compared to 2020, among 13- to 17-year-olds, messages were down 16% a day.

The internal documents found that content creation for the teen userbase had decreased on Facebook as well as Instagram. Content creation was down in Instagram’s top five markets, including the US, Japan, and Australia. But a lack of content is not the only problem Facebook is facing.

iOS update

Changes in Apple’s iOS have prioritised privacy in its latest updates. Apple's mobile operating systems and browser platforms for iPhones, iPads and Mac laptops and desktop computers have cut Facebook’s ability to track user activity.

In iOS 14 and 15, Apple introduced App Tracking Transparency (ATT), which stops apps from sharing information with outside websites. The new update means Facebook can still record when someone clicks on an advert, but is now unable to record conversion events, when another action is completed on the advertiser’s website such as buying an item.

This has decreased the value of Facebook advertisements, as the social media company is tracking less information about users and can no longer record conversion events. Google is less impacted by this change as it targets advertisements through searches on the platform, because it knows exactly what users are looking for.

Facebook said it expected its revenue increase to slow down in its third and fourth quarter due to advertising difficulties. Dave Wehner, the company’s chief financial officer, said in the Q2 results: “We continue to expect increased ad targeting headwinds in 2021 from regulatory and platform changes, notably the recent iOS updates, which we expect to have a greater impact in the third quarter compared to the second quarter.”

Controversial internal documents

Advertising restrictions are not the only difficulty Facebook has faced this quarter. Whistleblower Frances Haugen leaked thousands of internal documents that were published by the Wall Street Journal through newspaper articles and a seven-part podcast series.

The documents highlighted many controversial decisions and inaction by the social media giant. These include the revelation that Facebook conducted detailed internal research into its social media platforms, and found they were harmful to teenage girls.

Haugen complained to the Securities and Exchange Comission and testified earlier this month to the US Senate Subcommittee on Consumer Protection, Product Safety, and Data Security.

Brian White, an analyst at Monness Crespi Hardt, argued that this has provided congress with ammunition in their pursuit of Facebook and other Big Tech companies. He said: “We expect the stock to remain hostage to the negative news flow created by this whistleblower that could lead to another round of platform modifications, including dialling down engagement algorithms, and increasing spending on safety.”

 Zuckerberg started off the earnings conference call addressing these documents, according to CNN. He said: “Good faith criticism helps us get better, but my view is that we are seeing a coordinated effort to selectively use leaked documents to paint a false picture of our company.”

Facebook’s multiverse

Although there have been multiple recent headwinds for the social media giant, it is anticipating a new phase of long-term growth. This will be focused on the “metaverse”, an expansive virtual world that aims to be the successor to the internet.

This term was coined by Neal Stephenson in his science fiction novel Snow Crash. The metaverse was a virtual reality version of the internet with rooms, buildings, and roads. People could create their own avatars and interact with each other.

Facebook’s Q3 results outlined a new growth plan that would focus on virtual reality. Starting with next quarter’s earnings, the social media company will split its revenue and operating into two sections. The first will be its family of apps, including Facebook, Instagram, Whatsapp, and Messenger. The second section will be Facebook Reality Labs, comprising of its virtual reality hardware, software, and content.

Wehner announced that Facebook was dedicating significant resources to develop virtual reality products. He said: “We expect our investment in Facebook Reality Labs to reduce our overall operating profit in 2021 by approximately $10 billion. We are committed to bringing this long-term vision to life and we expect to increase our investments for the next several years.”

As well as a new technological concept, Facebook is planning on a rebrand, complete with a new name. Zuckerberg wants this to fuel the transition from Facebook being seen as a social media company to its being seen as a "metaverse" company. Analysts are sceptical about this rebrand, as it could help the social media giant avoid scrutiny, especially in connection with the recently leaked documents.

More details on the metaverse are expected at the company’s annual Connect conference on 28 October.

Competitors

Despite the mixed Q3 results, Facebook remains ahead of its competitors. Twitter’s Q2 results revealed revenue was at $1.19bn,  a 74% increase year-on-year. Facebook’s $29bn revenue for the same quarter was much higher. However, Twitter showed stronger growth as Facebook only increased its revenue by 7% year-on-year in Q2.

It was similar with the relatively new social media app TikTok. Parent company Bytedance revealed in an internal memo that annual revenue for 2020 was at $34.3bn, a year-on-year increase of 111%. Facebook recorded revenue of $84bn in 2020, but only saw a 21% increase.

The market reaction

Facebook’s stock price has been on a bullish trend since March 2020 when the pandemic began. At the beginning of January 2021, the price was around the $270 mark and increased throughout the year. On September 7 Facebook’s share price reached an all-time high at $381.90. Since Frances Haugen leaked the internal documents, Facebook’s stock price has been declining. As of 25 October it is sitting around the $330 mark.

When Snapchat released its Q3 earnings earlier this month, it missed predictions, again because of Apple's advertising changes, and the stock dropped 25%. CMC Markets has reported on fears of a knock-on effect on Facebook’s stock.

Facebook stock forecast

In terms of Facebook’s share price forecast, CNN has a strong prediction for the social media company. It asked 44 analysts for their FB stock forecast and found a forecasted high of $500 over the next 12 months, with a low of $300. Out of 51 analysts, the majority recommended buying Facebook stock.

MarketBeat’s Facebook stock forecast shows an average 12-month target for the Facebook stock price at $406.92. This is based on ratings from 39 analysts. MarketBeat also found a high target for Facebook’s share price at $500, with a low of $300.

CoinPriceForecast predicts long term growth for Facebook’s share price. Its Facebook stock prediction for 2021 is for it to reach $354, before increasing to above the $400 mark in 2022. Its Facebook stock forecast for 2025 is $741 by the end of the year.

FAQs

It might be. Despite this year’s bullish trend, Facebook’s share price has been decreasing since the internal document leak. However, CNN’s analysts recommended buying the stock as they forecasted a high of $500 for Facebook’s share price. Remember, analysts can often be wrong so always do your own research before investing.

It could do. CNN, MarketBeat and CoinPriceForecast forecast strong share price growth for the social media company. MarketBeat predicted an average target price of $406.92 for Facebook’s stocks over the next 12 months. Remember, predictions are not always right, so never invest more than you can afford to lose.

It depends. Facebook has been struggling with bad press after the document leak and advertising challenges after the iOS update. But analysts predict the social media company’s stock to increase over the next 12 months. However, it is essential that you conduct your own research before investing as prices can go up as well as down.

Further reading

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