Jon Hadad

About the Author Jon Hadad

Jon Hadad graduated from the University of Delaware with a degree in political science. Prior to joining the Smarter Analyst team, he was an industry analyst at a New York research firm.

Crypto Move Boosts Facebook (FB) Stock, But How Will It Play In Long Term?


With the tech world going crazy over Facebook (FB) recently announcing its new cryptocurrency Libra, FB stock is responding in kind. Up double-digits this month, many are excited over the company’s new task of making a worldwide currency, which will be used by Facebook users to buy items on the platform and pay each other through Messenger. While crypto’s best came last year, there is still hope among many that it will eventually become mainstream. Facebook hopes to play a role in this, as the company’s massive platform will allow it to provide security and regulation.

Lloyd Walmsley of Deutsche Bank has questions about the new coin, but overall, the analyst is maintaining his Buy rating on Facebook stock with $220 price target, which implies nearly 23% from current levels. (To watch Walmsley’s track record, click here)

Though Walmsley says he likes the strategic play with Libra and Facebook-developed digital wallet Calibra and the magnitude of the ambition behind it, he still has many questions around whether it can really live up to the recent hype.

The big question is whether Libra can scale. If this happens, he Walmsley says “reduced friction in E-commerce can increase the value of Facebook ads, and it can generate interest income on the currency collateral and open the door to more financial products.” Essentially, it will open up new revenue streams for a company that relies (almost) exclusively on ad income.

Walmsley also believes that the coin adds “more utility to core Facebook” and will play a role in “reducing the risk users simply leave the…app.” Further, it “enhances the utility of WhatsApp and Messenger, moving them a (small) step closer towards replicating the WeChat’s SuperApp functionality,” by making it extremely simple and safe to send money to peers and sellers.

Though Walmsley is positive on the new coin from a product standpoint, as it will help drive revenue and increase engagement on Facebook, he is concerned about regulation. The analyst points out that “intense regulatory scrutiny, lingering trust issues with Facebook, management by committee – among other concerns – weigh heavily in our minds vis-a-vis the ultimate success of the project.” The company is currently under the microscope in Europe and the US, and an attempt to now get into finance will most likely pull other regulatory agencies into the matter. Even so, given Facebook’s prowess across the line, the analyst remains a bull and sees “healthy upside potential to [his] $220 target.”

All in all, this latest move is expected to make the popular company even more so. Most analysts on Wall Streets are out rooting for this social media titan to be a winning stock pick, as TipRanks analytics showcase FB as a Strong Buy. Based on 30 analysts polled in the last 3 months, 35 rate a Buy on Facebook stock while 3 maintain a Hold. The 12-month average price target stands at $220.20, marking a nearly 15% upside from where the stock is currently trading. (See FB’s price targets and analyst ratings on TipRanks)

 

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