FB - Embedded Expectations Analysis - 2021 02 12
Facebook, Inc. (FB:USA) currently trades near corporate averages relative toUAFRS-based (Uniform) earnings, with a 21.4x Uniform P/E. At these levels, the market is pricing in bearish expectations for the firm. Although management's concerns about WhatsApp competition, DAU declines, and regulatory headwinds suggest the potential for near-term headwinds, market expectations are too bearish, and long-term equity upside is likely
Specifically, management may lack confidence in their ability to sustain net income growth, manage costs, and mitigate daily active user (DAU) declines in the U.S. and Canada. Moreover, they may be exaggerating the data privacy capabilities of WhatsApp, the developer interest for Oculus Quest 2, and the potential of augmented reality glasses. Furthermore, management may lack confidence in their ability to compete against Apple's iMessage, enhance their direct response (DR) ads, and improve community engagement. Finally, they may have concerns about the political content on their platforms and potential regulatory headwinds
Although management's concerns about WhatsApp competition, DAU declines, and regulatory scrutiny suggest the potential for near-term headwinds, market expectations appear too bearish given the firm's multiple growth drivers. As such, long-term outperformance is likely warranted
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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