FB - Embedded Expectations Analysis - 2020 08 04
Facebook, Inc. (FB:USA) currently trades above corporate averages relative to UAFRS-based (Uniform) earnings, with a 30.7x Uniform P/E. Even at these levels, markets are pricing in extremely bearish expectations for the firm. Although management's concerns about their growth, ad revenue, and e-commerce segment suggest the potential for near-term headwinds, market expectations are overly bearish, suggesting long-term equity upside is likelySpecifically, management may lack confidence in the potential of their COVID Information Center and the potential of the Messenger Kids app. They may also be exaggerating their commitment to stopping election interference, the importance of messaging commerce in developing countries, and the success of their clicks and messaging ads. Furthermore, they may lack confidence in the sustainability of growth in users and impressions, and may be concerned about continued increases in consumer and growth marketing spend. Additionally, they may be exaggerating the importance of their e-commerce business and the extent to which advertisers are interested in measurable results, and may be concerned about headwinds that will affect pricing in Q4
Although management's concerns about their growth in impression, ad revenue, and e-commerce segment suggest the potential for near-term headwinds, given the firm's opportunities to monetize its acquisitions and further increase its ad share, current market expectations appear too bearish. As such, long-term outperformance is likely warranted for FB
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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