Facebook: Deja Vu Or A Longer-Term Issue?

There appear to be many similarities between May 2012 and July 2018 for Facebook’s (NASDAQ:FB) stock. The stock price fell 50% within four months of the company’s IPO, and it has fallen almost 40% since the end of July 2018 when the company’s management outlined a lower growth trajectory for the company. Back in 2012, the primary issue was the unknown potential of what mobile social advertising could be worth, while today the issue has been the risks of mobile advertising and the company’s data and privacy practices. While the stock bounced back from the 2012 dip and then some, this time it may be different given the risks and customer/government backlash.

We currently have a price estimate of $170 per share for Facebook, which is around 20% higher than the current market price. Our interactive dashboard on Facebook’s Price Estimate outlines our forecasts and estimates for the company. You can modify any of the key drivers to visualize the impact of changes on its valuation.

Facebook’s stock bounced back from the more than 50% fall in the stock price from the IPO price of $38 in May 2012 to $18 in Aug 2012. While it wasn’t until August 2013 that the stock price recovered to its IPO price, it continued to rally for nearly the next five years. In July 2018, management conceded that the company is likely to witness lower growth and margins going forward due to increase investments in technology infrastructure to enhance privacy, which is when the stock price started declining again.

Online targeting for advertising was long seen as the cheapest way of broadening the funnel for marketers. However, in light of the developments around the Cambridge Analytica scandal and other data and privacy issues, questions have been raised around how safe customer data truly is, and Facebook has been receiving significant scrutiny from investors, users and government entities. As Facebook grapples with a multitude of issues, the company once again has the opportunity to showcase what social advertising could achieve for privacy. If it doesn’t resolve these issues, it could be a while before the stock returns to its previous highs (if ever).

Do not agree with our forecast? Create your own price forecast for Facebook by changing the base inputs (blue dots) on our interactive dashboard.