Is Facebook (FB) its own problem?
As a business, the social network giant is nearly unbeatable. More than two billion people are on its namesake platform, while another billion users are on its chat service WhatsApp and photo sharing social network Instagram. The company (with rival Google) is the most dominant force in internet advertising and is a money-printing machine as more and more advertisers flock online. But while investors love Facebook, over the past year the company seems to be its own worst enemy. Congressional hearings and data privacy scandals have plagued the company and stock, so much so that Facebook’s stock plummeted in 2018 even as the company continued posting record results. And now — a separate issue — the Federal Trade Commission (FTC) announced it is launching an antitrust task force specifically for Big Tech.
But negatives aside, Rosenblatt analyst Mark Zgutowicz remains an “aggressive” buyer of Facebook, maintaining his Buy rating and $212 price target on the stock, suggesting the stock has about 23% upside from current levels. (To watch Zgutowicz’s track record, click here)
Zgutowicz isn’t too concerned about the FTC’s new task force. The analyst says that “the underlying message [of the task force] appears directed at mega cap tech companies including Facebook, Google and Amazon, and whether past approved deals such as Instagram, are now disadvantaging vs. advantaging consumers.” While the biggest blow to Facebook would be if it was ruled it needed to spin-off Instagram, Zgutowicz does not “believe a force spin-off [Instagram] is [likely]” as “spinning out IG would not necessarily make the social media market more competitive,” while “it may be difficult to prove how a breakup of FB and Instagram would better protect user privacy.”
Even though Zgutowicz doesn’t see it happening, he believes there is only a “modest downside risk to [Facebook] shares if the company is forced” to spin-off Instagram. The analyst says he sees a “potential -13% downside to FB shares if the company is forced to spinout Instagram. While the spinout has the opportunity to highlight Instagram’s value, we believe this will be more than offset by the added costs of running two separate companies.”
Zgutowicz is looking at worst-case scenario, which doesn’t even look too bad for the internet giant. Even if Instagram was spun off, Facebook would still control Messenger and WhatsApp, two of the most widely-used chat apps in the world. As these two are just beginning to generate revenue, Facebook’s growth potential remains large, with or without Instagram.
Overall, Wall Street “likes” Facebook. A lot. Besides some self-inflicted harm, the analyst community thinks Facebook is virtually unstoppable. TipRanks analysis of 40 analyst ratings shows a consensus Strong Buy, with 32 analysts Buying, six recommending Hold and two Selling. The average price target among these analysts stand at $189.71, representing a 12% increase from current levels. (Get TipRanks’ free stock analysis report on FB)