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It seems that Facebook will have an interesting 2020 year. But will it bring its stock to $250? And what can help it to achieve this result?
We all know how it is to forget someone’s birthday, holiday or, god forbid, anniversary. Before we used our little calendars with post-its all around saying: “your first kiss anniversary, he wore a brown jumper, buy beer”, etc. However, since we have Facebook, it was hard to forget, well, almost anything. With its ‘calendar’ and ‘memories’ it reminds us of all the things we’ve done in the past – yes, that includes your drunk uncle puking after New year’s brunch. Its “Year in Review” videos, every one personalized for each of the social network’s 2.45 billion users, have already become a holiday tradition. However, what could Facebook say about its own year in review?
The last two years of this decade have been harsh for this social media giant. In 2018, we had genocide in Myanmar, lynchings in India and a fake news tsunami in Brazil. Then came Cambridge Analytica, an exodus of executives, regulators that never sleep, stagnating growth and a falling stock price. Of course let’s not forget the trip to Congress, jabbering about Alex Jones, the really weird defense of Holocaust denial, a starring role in an indictment of Russians, and more.
In 2018, Facebook stock was constantly falling – big time. From $180 at the start of 2018 to $130 by the end of the year.
Calendar 2019 was a bit different though. Data privacy concerns were still pretty much there but in a different context. Facebook decided to present its own cryptocurrency – Libra. CEO of Calibra David Marcus was grilled by members of the U.S. Congress for two days answering exactly questions regarding privacy concerns, money laundering, etc. Facebook’s CEO Mark Zuckerberg was even compared to Osama bin Laden and even though he (Zuckerberg) said he will pull Facebook from Libra if there is going to be any legal irregularity – the battue still hasn’t stopped.
However, in terms of earnings, Facebook can brag that this year was pretty much better than the last one. Revenue growth rates have stabilized in the upper-20% range. Operating margins are standing in the mid-40% range while the expense growth has been moderated. Facebook stock jumped as well. From $130 at the start of 2019, to over $200 heading into the last month of the year. At the time of writing it was up by 34% to $199.39 in premarket trading.
For the year 2020, Facebook stock could repeat its 2019 successes meaning growing revenue and healthy margin performance. FB stock could probably rise more than we thought in the next twelve months.
Main Influencing Factors
Be it as it may, there are two big drivers here that could bring Facebook stock to as high as $250 in 2020. Expanding share in the secular growth digital advertising market through increased ad real estate is one, and a big push into the e-commerce world with initiatives like Facebook Pay and Instagram Shopping is second.
Even though the digital ad market is slowing, (from a ~20% growth industry over the past few years, to a low double-digit growth industry over the next few years) and the competition in that market is increasing as well, (Amazon, Snap, Pinterest) Facebook is still hard to replace and there is a huge space if it decides to spread market share even more.
At the same time, Facebook is only monetizing its two billion users platforms with ads. You mostly don’t see ads on Messenger or WhatsApp, right? And exactly those two are the most used communication apps in the world. So, in short – Facebook’s secular digital ad headwinds will be strong in 2020, and perhaps even stronger as Messenger and WhatsApp incorporate ads.
The second big driver of Facebook stock in 2020 will probably be the company’s entrance into the e-commerce world.
As for what we know now, Facebook is still in the early stages of testing its different e-commerce growth initiatives. For now, these initiatives are mostly focused on Facebook Pay and Instagram Shopping so they are still not adding any significant revenue. However, that could change as well in the next year or two.
Since consumers are already used to browsing through Facebook and Instagram feeds, Facebook could use that fact to turn Facebook Pay and Instagram Shopping into forces to be immersed with in the multi-hundred billion dollar e-commerce market. In the next year, it is expected that these two commerce initiatives get some money revenue as well.
We still have to see when Libra will look at the light of the day. However, if that happens in 2020, Facebook might overtake the technology market as a whole. Bertrand Perez, director-general of the Libra Association, recently said the token should appear in the second half of 2020 adding that he is confident that all the regulatory difficulties could be solved by the launch. “The year we’ve taken prior to release will allow us to iron out all the problems,” he said.