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Social media giant Facebook (NASDAQ: FB ) had a rough 2018, as it was hit by data-privacy scandals, regulation crackdowns, slowing revenue growth, compressing margins, plenty of bad press, and a falling stock.
But FB still owns the four most-widely-used-internet properties in the world. Each of them has over a billion users, and only two are being monetized to their potential. Plus, continuous drivers are propelling the global-digital-advertising-market, where Facebook reigns supreme alongside Alphabet (NASDAQ: GOOG ), to double-digit-percentage growth.
Thus, in the big picture, FB is not only big and here to stay, but it has plenty of growth left, too. Because of that, it's only a matter of time before Facebook stock rebounds tremendously.
From a fundamental, technical, and sentiment perspective, that big rebound could happen in 2019. The fundamentals will start to bottom in the first half of 2019 and accelerate towards the back half of the year and into 2020. Meanwhile, the technicals imply that Facebook stock may have already put in a bottom, and sentiment towards the stock market is well-positioned to improve substantially in 2019.
All in all, FB will have a good 2019. So good that one might call Facebook stock a top idea for the year.
Facebook's Fundamentals Will Improve In 2019
Facebook's data-privacy and usage problems are being compounded by slowing revenue growth and falling margins. Bears think these trends will last forever. They won't.
Facebook's properties are very sticky. Consumers love the internet. They also love being on their phones. They spend half of the time on their phones with just five apps . Depending on users' age and location, FB owns between two and four of those five apps.
While there have been some movements calling for users to delete Facebook, the vast majority of consumers haven't followed that advice. The user base of Facebook's platform is still growing globally, Instagram remains the hottest app on the planet, and Messenger and WhatsApp, the top two communication apps globally, have not been hurt by Facebook's data-privacy drama.
Because Facebook's user base hasn't dropped, it hasn't lost any advertisers. Performance and reach are the main concerns of advertisers. Political noise is a sideshow. FB is still delivering on performance and reach better than pretty much everyone else. As a result, advertisers are sticking with the platform even after its troubled 2018.
Because of that, today's revenue growth slowdown won't last forever. Under the hood, Facebook's growth rates are slowing because the company is transitioning from its tried-and-true News Feed formats that carry high ad-unit prices to still-nascent Stories formats that carry lower ad-unit prices.
Eventually, the ad-unit prices on Stories will rise as Facebook figures out how to maximize the ads' performance. Since FB owns the world's largest Stories platforms, regardless of where ad money shifts (News Feed or Stories), ad spending will always flow to Facebook.
In 2019, Facebook will optimize the performance of ads on Stories, and the company's revenue-growth rates will accelerate towards the back half of the year.
Meanwhile, Facebook's margins are dropping sharply as the company spends much more money on data security. But its spending on that issue is expected to ebb soon, and the company's guidance indicates that its margins will rebound in the second half of 2019.
Thus, by the end of 2019, Facebook's revenue growth and margins could both accelerate. The market has a funny way of sniffing these things out before they happen. Thus, Facebook stock will likely rise in 2019 in anticipation of this turning point.
Sentiment And Technicals Are Turning a Corner
From a technical standpoint, it looks like Facebook stock has put in a bottom.
The stock's 20-day moving average, which has been in a downward spiral through the back half of 2018, is finally starting to flatten out. The spread between the 20- and 50-day moving averages is now as narrow as it's been since the stock's selloff began.
It will only take a few more good days to get the 20-day to move above the 50-day. If that occurs, it will mark the beginning of a golden-cross pattern which will strongly indicate that the uptrend of FB stock will persist for a lot longer.
There are also reasons to believe that the sentiment towards FB stock is becoming more bullish.
There is still a lot of bad press regarding FB and its policies. But, realistically speaking, the public will eventually grow tired of all this negativity, and the press will move onto something else. Since there have been many negative headlines about FB for a year now, it seems like the press will move on in 2019.
Moreover, sentiment towards the stock market is improving. The back half of 2018 was defined by fears of a recession. A blowout December jobs report in early January put those fears to rest. Ever since then, the market has trended higher, meaning that stocks have performed well at the beginning of the year. That's important, considering the old saying "as goes January, so goes the year" is statistically true .
The Bottom Line on FB Stock
The fundamentals, technicals, and sentiment of FB will all improve in 2019. As a result, Facebook stock will rally. That rally will be very big, considering how far the stock has fallen and that the stock is trading at its lowest valuation ever.
All in all, FB stock looks like a top idea for 2019.
As of this writing, Luke Lango was long FB and GOOG.
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