Facebook’s Stock Down 13%, Will It Fall Further?

Facebook (NASDAQ:FB) stock is down almost 13% since the beginning of this year, at the current price of $179 per share, as the spread of the novel Coronavirus rattles the stock markets and the broader economy. Facebook has under-performed the S&P thus far through the crisis, likely due to fears that the economy could slip into a recession, hurting demand for online advertising on its various products. We estimate that Facebook’s stock price could decline to levels of around $115 if its revenues fall by 10% vs FY’19, its margins contract to 20.9%, and its valuation multiple falls to levels of around 25x, down from around 31.7x at the end of FY’19. Below, we summarize a possible downside case for Facebook.  Our dashboard How Low Can Facebook Stock Go? discusses our 2020 expectations for the company. 

So what’s the likely trigger and timing to this downside?

The global spread of Coronavirus has meant the companies are wary of spending cash on online advertising and want to focus more on the core expenses only. We believe Facebook’s Q1 results in April will confirm the hit to its revenue. It is also likely to accompany a lower Q2 as-well-as full-year 2020 guidance. 

Specifically, we believe the full-year revenue expectations formed by the market at the time of April’s Q1 results may be closer to $63 billion – about 56% higher than its 2017 revenue of $40.7 billion, but 10% lower than the 2019 revenue of $70.7 billion. Our dashboard shows key components of Facebook’s revenues.

The market isn’t going to stomach this well, and Facebook’s P/E is likely to shrink by about 8% from the current 27.2x to 25x. 

Trefis also estimates the margins will likely drop from 26.1% in 2019 to 20.9% in 2020, this would mean a double whammy of 30% lower earnings and 8% lower P/E multiple, translating into a Facebook price drop of over 34%, to about $115 or lower.

Will such a drop be justified? Absolutely not. However, investors who are first out the door in a panic selling situation take a smaller hit to their portfolio.

We do believe these trends are likely to reverse in later quarters of 2020, and as the Coronavirus crisis is tamed during late Q2, higher revenue and earnings expectations will replace the dire scenarios that are easily imagined during difficult times. That said, the actual recovery and its timing hinges on the broader containment of the coronavirus spread. Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. Additionally, the complete set of coronavirus impact and timing analyses is available here.

See all Trefis Price Estimates and Download Trefis Data here

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