FB - Embedded Expectations Analysis - 2020 11 17
Facebook, Inc. (FB:USA) currently trades at a historical high relative to UAFRS-based (Uniform) earnings, with a 28.0x Uniform P/E. Even at these levels, the market is pricing in bearish expectations for the firm. Although management's concerns about margins, active user growth, and Facebook Reality Labs suggest the potential for near-term headwinds, market expectations are overly bearish, suggesting long-term equity upside is likelySpecifically, management may be concerned about their 2020 expenses, margin declines, and technological hurdles in developing augmented reality. Moreover, they may have concerns about the sustainability of daily active users (DAUs) and monthly active users (MAUs) in the U.S. and Canada. Furthermore, they may lack confidence in their ability to sustain MAU growth and maintain customer retention for their apps. Additionally, they may lack confidence in the potential of Facebook Reality Labs and their ability to help gaming streamers build a community through Facebook Gaming. Finally, management may have concerns about their ability to build new innovative experiences in their apps and sustain strong support for freedom of expression
Although management's concerns about margins, active user growth, and Facebook Reality Labs suggest the potential for near-term headwinds, current market expectations appear too bearish given the firm's opportunities to monetize its acquisitions and further increase its ad share. 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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