Have Privacy Concerns Weighed On Facebook’s Revenues?

by Trefis Team
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In the wake of the Cambridge Analytica privacy scandal, GDPR implementation and a series of fines, the consensus opinion about Facebook (NASDAQ:FB) has been that growth is going to taper off. The management’s guidance of expected weakness due to product changes had further bellowed the fire – resulting in Facebook’s stock declining to a low of $123 late last year from an all-time high of almost $209.

However, over the last few quarters, there seems to be limited evidence of any weakness. Facebook reported another quarterly beat across revenue and EPS in Q3 recently. Like in the previous quarters, the Facebook management continued to low-ball expectations with guidance for a weak Q4. But investors are clearing seeing through this trend – which explains why the stock is currently trading close to the $200-mark. As we detail in our interactive dashboard for Facebook’s Revenues, there has been a steady growth in the top line for the social media giant, and the trend is expected to continue in 2020.

Instead, we think that the company’s bulging cash balances (over $52 billion at the end of Q3), warrant cash deployment. And the company should be using this idle cash for strategic big-ticket acquisitions. Per Trefis analysis, Facebook could look at either or both of the following:

  • Match Group: Facebook had recently launched its dating feature to compete with Tinder. We think the difference in the company’s perception and user economics makes it more compelling for Facebook to buy Match Group, rather than compete with it. Our interactive dashboard highlights why we think Facebook could potentially acquire Match Group.

 

  • Yelp: Yelp has been in the woods for a while and despite its association with GrubHub, the company has found it hard to growth the top line at a rate commensurate with market expectations. We think Yelp presents a good stepping stone for Facebook’s retail ambitions and a deal could be mutually beneficial to both companies. We detail the rationale behind Facebook potentially acquiring Yelp in an interactive dashboard, along with our workings for the estimated acquisition price.
Trefis values Facebook at a price-to-earnings multiple of 23.4x, which along with a projected EPS of $8.91 gives us the price estimate of $208 per share for Facebook’s stock.
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