FB - Embedded Expectations Analysis - 2021 05 20
Facebook, Inc. (FB:USA) currently trades near corporate averages relative to UAFRS-based (Uniform) earnings, with a 21.7x Uniform P/E. At these levels, the market is pricing in bearish expectations for the firm. Although management's concerns about sustaining ad pricing increases, app engagement, and Oculus performance suggest the potential for near-term headwinds, market expectations are too bearish, and long-term equity upside is likelySpecifically, management may lack confidence in their ability to sustain increases in average price per ad, maintain daily and monthly active user growth, and improve Oculus Quest 2's performance. In addition, they may have concerns about decelerating business growth, consumer dislike of algorithmic amplification, and the impact of iOS 14 security changes on their apps. Furthermore, management may lack confidence in their ability to maintain engagement on their apps, build a comprehensive commerce platform, and drive best-in-class content creation. Moreover, they may be overstating the capabilities of Oculus Air Link as well as the potential of Oculus Quest for non-gaming apps
Although management's concerns about sustaining ad pricing increases, app engagement, and Oculus performance 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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