The spread of COVID-19 (a disease caused by a novel coronavirus) has wreaked havoc on the financial markets, and seemingly no company is immune to the fallout. As the markets get pummeled, though, smart investors will look for buying opportunities.
Facebook (NASDAQ: FB) is near the top of my list of stocks to buy as share prices continue to go down. While it might not be immune to the problems caused by the coronavirus pandemic, it has several characteristics that make it a strong buy in the current market environment.
Staying connected during a quarantine
Every day, more and more workers are being told to stay home and get their work done remotely. Consumers are canceling travel plans. Going out to hang out with friends in a crowded bar or restaurant may even be something to avoid in higher-risk areas. All because of concerns about spreading the virus.
As a result, Facebook could see increased engagement across its apps. First of all, Facebook's suite of apps offers the best way for people to stay in touch with their friends and family when they're stuck at home. It has 2.9 billion monthly active users across Facebook, Instagram, WhatsApp, and Messenger. If there's someone you want to connect with, you can probably find them on at least one of Facebook's apps.
Secondly, Facebook is a major source of news for a large portion of the population. About 15% of Americans say their preferred source of news is social media, and Facebook is by far the most popular among them. As more consumers come to Facebook to check on the spread of the virus and to make sure their friends are safe, engagement on the platform will get a nice boost.
Facebook's advertising mix favors the current environment
Facebook has over 8 million businesses advertising on its platform. The sheer breadth of active advertisers makes Facebook's revenue more durable than that of smaller competitors.
However, Facebook will also see benefits from less exposure to categories such as travel and more exposure to categories such as e-commerce or gaming.
Competitors such as Alphabet's (NASDAQ: GOOG) (NASDAQ: GOOGL) Google have considerably more exposure to the travel industry, which typically pays premiums for advertisements. Travel-related searches are some of the search leader's most valuable searches. As search volume for travel goes down, and prices for flights and hotels get less expensive, the amount of travel-related ad spend will decline.
Meanwhile, Facebook's continuing to increase its efforts in e-commerce, particularly on Instagram. Not only is the shift to e-commerce a secular trend, but consumers are currently conscious of staying home to order things online instead of going to stores. That could result in more competition for e-commerce ads on Facebook's platforms.
Long-term growth from a secular trend
The long-term thesis on Facebook is that ad spending will continue to shift from legacy media such as television and print to digital.
Facebook may actually benefit long term from an economic downturn, says Atlantic Equities analyst James Cordwell. While revenue growth would certainly slow for Facebook if coronavirus and other market forces cause a recession, it wouldn't be hurt as badly as other companies relying on print or television advertising. That's because marketers would be forced to focus their budgets on areas that produce the best return on ad spend, and that's often digital advertising -- specifically ads on tech giants with hoards of data such as Facebook or Google.
That would position Facebook to rebound quickly from a recession by accelerating the shift in ad spending. As ad spending ramps back up, a larger portion would find its way to Facebook than if the economy otherwise continued to chug along as it has for the past decade.
Overall, Facebook is well-positioned to both weather the fallout of the coronavirus's impact on the financial markets and emerge stronger than companies in other industries. That makes it worth your consideration as a stock to buy during the turmoil.
10 stocks we like better than Facebook
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Adam Levy owns shares of Alphabet (C shares) and Facebook. The Motley Fool owns shares of and recommends Alphabet (A and C shares) and Facebook. The Motley Fool has a disclosure policy.
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