Wrong Time to Buy Facebook
Facebook Inc. (FB) shook off growing political headwinds and Apple Inc.’s (AAPL) iOS 14 activity blocking technologies on Monday evening, gaining nearly 2% despite missing Q3 revenue estimates and issuing downside revenue guidance. The social media giant posted a profit of $3.22 per-share during the quarter, $0.04 better than expectations, while revenue rose a healthy 35.1% year-over-year to $29.01 billion, more than $500 million lower than consensus.
Apple Ad-Tracking Woes
Snap Inc. (SNAP) triggered a sector-wide decline last week after missing revenue estimates due to iOS 14’s negative impact on ad targeting. Facebook warned as well, noting “significant uncertainty we face in the fourth quarter in light of continued headwinds from Apple’s iOS 14 changes, and macroeconomic and COVID-related factors. In addition, we expect non-ads revenue to be down year-over-year in the fourth quarter as we lap the strong launch of Quest 2 during last year’s holiday shopping season.”
Facebook has even bigger issues to address in 2021, with whistleblowers describing questionable business practices that allegedly place profits over hate speech. In addition, the company was forced to delay the launch of Instagram Kids earlier this month after a whistleblower alleged it ignored in-house research about the negative effects on teenage girls. Despite the controversies, legislative action is unlikely because many members of Congress take large donations from Big Tech, making it unlikely they will pursue draconian solutions.
Wall Street and Technical Outlook
Wall Street consensus has been remarkably stable in 2021 despite those controversies, now standing at an ‘Overweight’ rating based upon 35 ‘Buy’, 4 ‘Overweight’, 11 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $300 to a Street-high $500 while the stock is set to open Tuesday’s session more than $80 below the median $415 target. It’s clear from this placement, and the 50-point decline since September, that current events are having a negative impact on Main Street sentiment.
Facebook topped out just above 200 in 2018 and cleared that resistance level in May 2020, entering a strong uptrend that stalled above 300 in August. An April 2021 breakout made excellent progress into September’s all-time high at 384.33, ahead of a steep decline that sliced through 50-day moving average support a few days later. The selloff reached the 200-day moving average on Oct. 4, yielding an extended test that’s still in progress. Neither bulls nor bears have a major edge at the moment, telling sidelined investors to look elsewhere for profits.
For a look at today’s economic events, check out our economic calendar.
Disclosure: the author held Snap in a family account at the time of publication.