FB - Embedded Expectations Analysis - 2019 08 05
Facebook, Inc. (FB:USA) currently trades above historical averages relative to UAFRS-based (Uniform) Earnings, with a 26.5x Uniform P/E. Even at these levels, markets are pricing in extremely bearish expectations for the firm, and while management's concerns about privacy controls, government regulation, and expenses suggest the potential for near-term headwinds, the firm's leadership position in its space and management's confidence about user engagement rates suggestlonger-term upside remains warranted.
Specifically, management may be concerned about their ability to reorganize their services following the FTC settlement, and they may be concerned about the impact future privacy controls will have on the business. Furthermore, they may be exaggerating the demand they see for payment features in their apps, and they may be concerned about seeing full payments approval in India. Additionally, they may lack confidence in their ability to monetize the Facebook marketplace, and they may be concerned about the sustainability of recent growth in Europe. Finally, they appear concerned about the sustained impact of higher expenses related to their FTC settlement.
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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