2018 wasn’t Facebook’s (FB) best year, to put it lightly. The stock was very volatile and ended the year on a low after multiple security breaches that leaked users data. It was a public relations nightmare, but the business has issues beyond that — like a decline in user engagement when it comes to the younger demographic, difficulty getting users to switch to the Story feature, increased regulation from the government over political troubles, Advertiser backlash and major changes in high-level management.
However, the demerits don’t prevent J.P. Morgan’s top analyst Doug Anmuth from making FB one of his top picks. Anmuth says FB stock holds its own for a handful of reasons – but mostly – he believes it’s a company that’s here to stay. With an Overweight rating and a 12-month price target of $195, Anmuth sees a potential 36% upside for Facebook.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, 5-star analyst Doug Anmuth has a yearly average return of 18.8% and a 66% success rate. Anmuth has a 43% average return when recommending FB, and is ranked #38 out of 5,140 analysts.
“[…] we remain positive on Facebook as: 1) We view core FB as stickier than many think, with recent metrics mostly stable and our proprietary survey work showing solid engagement, while Instagram continues to grow rapidly, driving platform family growth to 2.6B MAUs in 3Q18; 2) We believe Facebook’s revenue deceleration is manageable—we project 26% FXN growth in 2019 & 21% FXN in 2020—as demand for core FB remains strong driven by scale & ROI, Instagram revenue is growing fast (we estimate $14B in 2019), & Stories ads are gaining traction; 3) Heavy opex growth (40%+) is already anticipated for 2019, but GAAP EPS growth should accelerate into the mid-teens in 2020 as revenue and expenses better align; & 4) We believe valuation is compelling at 16x 2020E GAAP EPS.”
The analyst also suggests there are some things to “watch out for” including keeping an eye on MAUs/DAUs and any potential new disclosures that would better gauge platform health and transitions. New revenue opportunities including dating, payments and blockchain are potential additions that could bring in more cash. Bigger share buybacks are some ideas the analyst suggests keeping an ear out for as well.
Despite the heat the company has been under, the stock is still doing well on Wall Street. TipRanks analytics show out of 39 analysts, 32 are bullish like Anmuth, while 5 are sidelined and 2 are bearish. The consensus price target of $184.81 shows a potential 29% upside. (See FB’s price targets and analyst ratings on TipRanks)