Facebook stock forecast: is FB a good stock to buy?
What does Facebook’s latest quarterly update mean for the Facebook stock forecast?
Contents
Facebook is one of the biggest companies in the world. The company has become synonymous with social media and, to some, the internet itself. Nevertheless, Mark Zuckerberg’s business is still fighting to become more successful still, and even now people are looking at investing in it in the hope that it achieves its goal. How does the FB stock forecast look? We'll begin with a review of how the social media giant has done recently and the effect it has had on the Facebook (FB) stock price.
The year so far
Facebook had a good first quarter in 2021. Facebook stock projections took a hit in 2020 as advertising spend dried up, but businesses returned to the platform with a vengeance between January and March. Advertising revenues, which account for the lion’s share of income, hit $25.4bn in the first quarter, a year-on-year boost of 46%. The company’s net income for the first quarter came in at $9.5bn, up 94% on the same period in 2020. This was good news, otherwise, analysts would have been forced to rewrite their Facebook stock predictions.
One of the crucial pieces of news that will have had an bearing on the Facebook (FB) share price was the announcement that Apple’s latest iPhone operating system, iOS 14, would feature a new privacy system. Because of how users can now give consent about how apps trace their internet usage, the announcement sparked fears that Facebook would struggle to deliver the targeted ads that generate better results for businesses, affecting its profitability.
Indeed, Facebook said it had factored in this threat into its guidance for the second quarter, where it expected year-on-year total revenue growth “to remain stable or modestly accelerate relative to the growth rate in the first quarter of 2021”.
The three months since it published its first-quarter results have seen developments for Facebook outside of its regular business. In June, A court dismissed an antitrust complaint from the United States Federal Trades Commission. Then in July, the US president, Joe Biden, criticised the site for not doing more to stop people from spreading anti-vaccine propaganda, going so far as to say in July that Facebook was “killing people”.
No company, however, not even one as big as Facebook, can afford to rest on its laurels. On 28 July, the company released its financial update for the second quarter of 2021. How did it do? Let’s find out.
Good news
When the results came in, things appeared to be cautiously optimistic for the company, at least in financial terms. The business’s total revenue came in at $29.08bn. That represented a rise of 56% year-on-year, up from $18.69bn. Crucially, according to CNBC, that also meant Facebook beat the analysts polled by Refinitiv, who gave an average revenue estimate of $27.89bn. The year-on-year revenue growth is the fastest since 2016, and represented a 48% rise from the previous quarter.
Facebook shareholders also had cause to celebrate. The company’s diluted earnings per share (EPS) stood at $3.61. In the second quarter of 2020, the same metric stood at $1.80, meaning it has more than doubled in a year. Again, Facebook bested the analysts polled by Refinitiv, who suggested an average diluted EPS of $3.03.
The news comes as Facebook's reach expanded. As a free-to-use site, the advertising performances on the social network is vital for Facebook’s bottom line. The price of an advert on the platform went up by 47% year-on-year, while the total number of adverts served was up by 6%.
Across apps that Facebook owns, including Instagram, WhatsApp and Messenger, active user numbers increased from 3.45 billion per month in the first quarter to 3.51 billion in the three months to the end of June.
Bad news
There were also negatives for the company, however. In its earnings report, Facebook said that it expected a slowdown in revenues later this year:
“In the third and fourth quarters of 2021, we expect year-over-year total revenue growth rates to decelerate significantly on a sequential basis as we lap periods of increasingly strong growth. When viewing growth on a two-year basis to exclude the impacts from lapping the COVID-19 recovery, we expect year-over-two-year total revenue growth to decelerate modestly in the second half of 2021 compared to the second quarter growth rate.”
In particular, Facebook noted the effect of the latest iOS update and the way it might adversely affect advertisers’ targeting methods on the network. Facebook said: “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. This is factored into our outlook.”
With those issues in mind, how did the markets react? What was the significance of this good news and bad news for the Facebook stock forecast?
What the experts think
Facebook’s second-quarter update came out after the New York Stock Exchange closed on 28 July. When it closed, the Facebook (FB) stock price was $373.28. However, once the markets reopened and traders had had the chance to digest the financial update, it fell by 3.28% to $361.03, with the company’s caution about sustained growth reflected in the Facebook (FB) share price’s stock market performance.
In making Facebook stock predictions, however, experts remain optimistic and even bullish according to CNN. Out of the 44 analysts it polled who were making a Facebook stock forecast for 2021 and the first seven months of 2022, the median rating for 12 months was $402, up just over 11% from its starting price on 29 July. The most optimistic Facebook stock forecast saw it valued at $500, up by around 38.5%. There was room for caution, though, with the most pessimistic 12-month valuation predicting a price of $275, down 23.8%.
When it came to analysts’ recommendations, things were still positive. Out of 51 experts polled for CNN, 38 believed people should buy Facebook stock, four claimed it would outperform expectations, eight suggested holding the stock for now and just one person recommended selling.
FAQs
Possibly. As usual with trading, the best advice is to do your own research, remember that stock prices can go down as well as up and never invest more money than you can afford to lose.
That depends on how much risk you are prepared to take. What we can say is that Facebook’s price-to-earnings ratio (which is calculated by dividing the earnings-per-share figure by the current share value) stands somewhere in the region of 100, meaning it could be considered overvalued. That doesn’t necessarily mean that it is a bad investment, though.
There is nothing to suggest that it will never reach the $1,000 mark, but if it does, it seems unlikely to happen for quite a while. Keep in mind that the most bullish Facebook stock forecast predicts a value of $500 – half of $1,000 – in 12 months’ time. Based on that, there’s quite a way to go before FB hits that magical mark.
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