Here's Why Facebook Shares Could Reverse Their Recent Stumble
Omar Marques/SOPA/LightRocket/ Getty
After the NAFTA rewrite, which is now called the USMCA, people seem focused on big auto stocks that could be set for gains as a result of the agreement.
Yes, Ford (F) - Get Report and General Motors (GM) - Get Report may have an improved outlook since their costs of production will be lower. Still, they're required to have 45% of all vehicles produced by workers making at least $16 an hour. Ford and GM likely will see improved margins but we'll still have to wait to see more details on the trade agreement, and Congress' review process of the deal. Plus, analysts' notes are sure to be released Tuesday, which could shed more light on just how much margins for automakers can improve, and just how strong any potential gains could actually be for those stocks.
Therefore, let's look elsewhere.
Facebook (FB) - Get Report could be a good buy right now. The stock fell 1.23% on Monday, and fell as much as 3.4% Friday after another security breach in which 50 million user accounts were hacked. It's the second breach Facebook had this year. The first one was the Cambridge Analytica scandal. With this second scare, investors were scared off.
It's also hard to say what impact the departure of the Instagram founders are having on the stock, but investors don't seem incredibly enthused. I think the departures could be really good news for the stock. It's possible the Instagram founders left in part because Facebook management had pushed too hard for monetization on the platform. JPMorgan wrote in a note to clients recently that it believes the departures were "also possibly tied to FB management pushing Instagram hard for both user growth and monetization."
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Facebook no longer has to walk the balance of keeping its Instagram founders in place and also monetizing the platform. It's now free to monetize more aggressively. When the WhatsApp founder, Jan Koum, quit, there was also a narrative that he too had disliked Facebook's push for monetization. A Barclays note said at the time, "With Koum's departure, it could mark the starting point for more aggressive monetization of WhatsApp."
Facebook's stock is down 11.04% this year. Much of that is due to a slashed outlook from the July earnings report, slowing user growth in the European Union, perhaps a result of GDPR, and the most recent security scare on the platform. Instagram, however, is a huge driver of growth. A Stifel analyst said in a note in August that Facebook's revenue could almost double as a result of Instagram, and who knows how much bigger that increase could be with a potentially more aggressive Instagram monetization effort. Facebook is trading at 22 times trailing 12-months earnings, well below where it was trading pre-earnings in July, when it was at a multiple of 32. This is currently one of the lowest multiples Facebook has ever been valued at.
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