Buy Facebook (FB) Stock at New Highs for Coronavirus E-Commerce Push?
Facebook FB stock surged over 6% to hit brand new highs Wednesday, as Wall Street gushes over its latest e-commerce push. The social media powerhouse announced on Tuesday its new “mobile-first shopping experience” called Facebook Shops that could help it compete against the likes of Amazon AMZN.
Shops & More
Mark Zuckerberg’s firm announced in a blog post that it’s launching Facebook Shops, which it calls a “mobile-first shopping experience where businesses can easily create an online store on Facebook and Instagram for free.” The move comes as Facebook finds success with its Marketplace that competes against the likes of eBay EBAY and Craigslist. Shopping directly on Instagram has also become popular.
Facebook Shops will allow users and businesses to essentially create a streamlined and pared down version of their e-commerce sites directly on Facebook and some of its other family of services. “Our goal is to make shopping seamless and empower anyone from a small business owner to a global brand to use our apps to connect with customers,” Facebook wrote.
The social media company said it was working with partners like Shopify SHOP, “to give small businesses the support they need.” Facebook’s latest e-commerce push couldn’t have come at a better time, with retailers around the world struggling—aside from giants like Walmart WMT and Target TGT—during the coronavirus pandemic.
Analysts expect the free e-commerce offering to help boost and expand its core advertising business, as business big and small pay for exposure. Meanwhile, it will help Facebook start to compete within the expansive and booming e-commerce space alongside giants such as Amazon and smaller players like Etsy, Inc. ETSY.
The nearby chart shows investors that Facebook has roared by its pre-coronavirus highs and is now up 60% since mid-March. FB hit a new intraday high of $231.34 Wednesday. Facebook stock has now doubled the broader tech space over the last two months to match stay-at-home standout Zoom ZM and easily top Netflix NFLX and Microsoft MSFT.
Investors should also note that Facebook in April said it would pay $5.7 billion for roughly 10% of Indian telecom powerhouse Jio Platforms Ltd. The move is a bet on the massive Indian market (roughly 1.3 billion people), where FB already has over 400 million WhatsApp users. “We’re making a financial investment, and more than that, we’re committing to work together on some major projects that will open up commerce opportunities for people across India,” Zuckerberg said in a post on his personal Facebook page.
More recently, Facebook at the end of April impressed Wall Street with solid first quarter results. FB’s daily active users climbed 11% to 1.73 billion, while its MAUs popped 10% to 2.6 billion. Both of these growth rates topped recent periods. Plus, overall engagement across Facebook, Instagram, WhatsApp, and Messenger increased as millions of people around the world are cooped up inside.
This growth helped Facebook’s Q1 revenue pop 18% to reach $17.74 billion. Meanwhile, its adjusted first quarter earnings soared over 100% from the year-ago period to hit $1.71 a share. Perhaps more importantly, FB executives calmed Wall Street nerves about its advertising sales during the coronavirus.
FB said that “we have seen signs of stability reflected in the first three weeks of April, where advertising revenue has been approximately flat compared to the same period a year ago.”
The coronavirus economic downturn and uncertainty are poised to continue to impact its ad business, which makes up roughly 98% of total revenue. Despite the expected downturn, as businesses cut back on spending, Facebook and its various platforms will remain highly attractive in an age where people pay not to see ads.
Despite resting at new highs, FB stock is trading at 7.4X forward 12-month Zacks sales estimates. This marks a discount compared to its own one-year high of 8.4X and Microsoft’s 9.1X. Plus, Facebook sits on roughly $50 billion in cash and equivalents—even taking into account its Jio investment and its $5 billion FTC settlement, which took effect in April 2020 after Q1.
Facebook is currently a Zacks Rank #3 (Hold) that sports “B” grades for Growth and Momentum in our Style Scores system. FB is also part of an industry that rests in the top 12% of our more than 250 Zacks industries.
Some investors might want to wait for FB to cool off in the near-term, or wait to see how Q2—its first full coronavirus quarter—shakes out. That said, longer-term investors could consider buying Facebook stock give its massive global reach, e-commerce expansion, and more.
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