FB - Embedded Expectations Analysis - 2019 05 02
Facebook, Inc. (FB:USA) currently trades above historical averages relative toUAFRS-based (Uniform) Earnings, with a 24.8x Uniform P/E. Even at these levels, markets are pricing in extremely bearish expectations for the firm, and while management concerns about privacy and safety investments, government regulation, and expenses suggest the potential for near-term headwinds, the firm's leadership position in its space and lack of management concern about user adoption rates suggest longer-term upside remains warranted.
Specifically, management may be exaggerating their priority of developing a
privacy-focused social platform, and may lack confidence in their ability to utilize AI to enhance platform safety. Moreover, they may be concerned about the impact and timing of privacy regulations in the EU and US, and may lack confidence in their ability to effectively manage innovation investment costs and capex. Finally, they may be downplaying concerns about ad revenue headwinds from their shift in Stories usage mix, and may be concerned about product changes and the decline in payment and other fee revenues.
That said, even with near-term headwinds suggested by management's pessimism, long-term outperformance remains warranted at current valuations if FB is able to just maintain profitability at current levels.
Facebook is building and engaging products that enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality headsets, and in-home devices. The company's products include: Facebook, which enables people to connect, share, discover, and communicate with each other on mobile devices and personal computers; Instagram, which is a place where people can express themselves through photos, videos, and private messaging, and explore their interests in businesses, creators and communities; Messenger and WhatsApp, which are messaging applications; and Oculus, which connects people through its Oculus virtual reality products.
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