In the wake of several major privacy scandals that have rocked Facebook’s (FB) reputation, it is fair to question if it is the right time for the company to attempt to create a functional global currency, which is something that has not yet been achieved in this era of fiat currencies and emerging cryptocurrencies.
Facebook’s Libra will be used for payments between users and from users to vendors. Much like the USD was pegged to gold prior to 1976, the Libra will be pegged to a basket of stable and prominent fiat currencies to ensure it doesn’t experience the same fluctuations that are commonplace in other cryptocurrencies.
Jeffries analyst Brent Thill is skeptical about Libra’s chances of having success in the US market, although he is very bullish about the company’s prospects overall. Thill has a price target of $230 and a Buy rating on Facebook’s stock. (To watch Thill’s price target, click here) TipRanks analysis of Brent Thill’s annual performance shows that his success rate on his calls is 75%, his average return is 19.5%, and he is ranked #18 out of 5,243 analysts evaluated by TipRanks.
Thill conducted a survey of over 600 social media users in the US and “most said they were unlikely to use the cryptocurrency.” Specifically, 36% of respondents said they were unlikely to use the service and 44% said they were very unlikely to use Libra. This is quite concerning for Libra’s prospects, as currencies rely on network effects to be useful. One user’s utility from the service derives from others utilizing the same payment service.
Facebook has an incredibly large base of users from which to begin, but Thill believes that two factors are impeding its ability to penetrate the payment market successfully. The foremost concern users have is about privacy, and in Thill’s survey, nearly half of the respondents stated that they did not trust Facebook. After Facebook mishandled social media data it is reasonable to worry about its ability to handle financial data. Facebook tried to sooth this concern by creating the Libra Association Council, made up of major payment and technology companies, but Facebook is still the ‘face’ of the currency. Thill also notes that “40% of respondents said they already had a mobile payment wallet and saw no reason to use Libra.” The US financial system is already robust and other mobile payment alternatives have existed for multiple decades at this point, so there is not a clear use case for Libra in the US market.
However, the currency may have an incredible opportunity to penetrate emerging markets, where mobile payment adoption is low and robust institutions to stabilize fiat currencies are lacking. Even with this opportunity abroad, Thill notes that it is incredibly difficult to change consumer purchasing behavior, using Apple Pay as an example. Only 12.5% of iPhone users in the US and 6.9% of US Android users have tried Apple Pay.
Although Jeffries’ analyst Brent Thill does not believe that the Libra will have a material impact on Facebook’s revenue in the near-term, he does believe in the strength of Facebook’s core advertising business, and he is not alone on Wall Street. TipRanks analysis of 39 analyst ratings over the last three months shows that there is a Strong Buy consensus on the stock. 35 analysts have Buy ratings on FB, and 4 advise to wait on the sidelines. The average price target on Fb is $221.22, which is a 12.6% upside on the current stock price. (See FB’s price targets and analyst ratings on TipRanks)