The current market rally that's propelled US benchmark indices including the S&P 500 and NASDAQ Composite to new all-time highs this week seems to have done nothing for Facebook (NASDAQ:FB) shares. The stock of the world’s largest social media company, which closed last night at $176.26, is down almost 20% from its 52 week high of $218.62 in late July.
That historic plunge, which began on July 25 after Facebook warned during its Q2 2018 earnings report that revenue growth would continue to slow during the second half of the year, wiped out a record $119 billion in value. Since then, shares of the social media behemoth have shown no sign of life.
Facebook shares recovered strongly from previous corrections, having proven to be great buy-on-the-dip opportunities, but this time is different. Shares have continued to languish even as other tech giants have fully participated in the market’s most recent bull run.
For the full year of 2018 so far, the stock is down 2%, trading at the lowest level since April. The upward momentum for Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) on the other hand, doesn’t seem to be stopping anytime soon; shares for those companies have risen 27% and 63%, respectively for the year.
Still A Dip-Buying Opportunity?
If you’re just entering the game, thinking to buy Facebook stock on the dip, the big question is whether this strategy will work this time.That’s a million-dollar question and probably too tough for market pundits to answer. After all, the company is still recovering from its biggest crisis since its 2012 IPO.
In our view, Facebook remains a solid long-term play despite all the setbacks the company has faced this year, events ranging from a Russian intervention in the U.S. presidential elections via Facebook as well as other social media platforms, to the Cambridge Analytica data breech scandal that triggered a global push for scrutiny around the company’s data privacy practices.
Amid the daily market noise, it’s tough to stay focused on Facebook's bigger picture. Despite all the negative press and government scrutiny, Facebook remains the most powerful media platform for advertisers. According to the latest data collected by Apptopia, 32% of the time spent on one of the top 100 apps in the world was on a Facebook-owned app.
Users spent 300 billion hours on Facebook-owned apps in the three months from May through July. That's more than double the amount of time spent on Google (NASDAQ:GOOGL) apps.
Stock Holding Its Ground
After giving the initial shock to investors when the company announced disappointing second-quarter earnings, Facebook shares are holding their ground. That shows that most of the bad news is already fully baked into the stock. Barring any additional negative surprises, shares should resume their upward momentum soon.
Without doubt the issues that the company faced this year have severely impacted the future expectations on both growth and margins, but Facebook is still making money. In fact, it’s making a lot of money. Based on current analyst estimates, Facebook is forecast to grow revenue by 37% and earnings about 34% for the fiscal 2018.
For the company, the biggest challenge will be convincing investors that while Facebook's days of easy growth are over, it still operates the most advertiser prized social media properties. Indeed, WhatsApp, Messenger and Instagram have more than 1 billion users each. The entire Facebook suite of products has 2.5 billion monthly users.
We believe this provides a lot of ammunition for Mark Zuckerberg with which to engineer a quick turnaround and exceed expectations. As well, we don't think this isn’t too much to expect from a company that reported sales growth averaging 50% during the past 10 quarters and has a remarkable track record of surprising analysts quarter after quarter.
The Bottom Line
It’s tough to be a Facebook bull right now. The company’s growth is slowing and there's little hope for an upside in the short-run. But if you’re willing to bet on the stock over the longer term— say for the next five to 10 years—there is a little reason to be bearish on the company. At the moment Facebook fundamentals are worsening, but its core business continues to remain highly promising.