Growth and Value Briefly Diverge -- Where Does This Leave Facebook and Google?

Shares of Facebook (FB - Get Report) and Google (GOOGL - Get Report) were clearly caught on the growth side of the market rotation last week that saw growth stocks fall and value stocks rise. 

But the market has been sending mixed signals on these stocks. Before we get into the internet behemoths, let's review what has happened. 

The Market Rotation 

Between Sept. 5 and Sept. 10, growth stocks fell a tick, while value stocks hopped up a notch. The iShares S&P 500 Growth index shed about 1.2% in that span, while similar value index rose 1.7%. Some speculated this was yet another signal investors are growing weary of recession, as the U.S. economy is clearly late in its boom cycle. Still, some market participants were quick to note that the market rotation may have been more a blip on the radar, rather than the start of a new trend. 

Nonetheless, in the same time span, Facebook shares fell 2.1%, signaling that investors view the stock as very much still a growth stock. Google shares fell 0.58%, suggesting investors still view Google as somewhat of a growth stock, but maybe less-so than Facebook. 

Market Confusion?

But recently, the narrative on these two internet domineers has been quite the opposite of what the market implied in the stock market rotation that was so noted by many media outlets. 

"We've thought of these massive multiples if you're talking 50, 60, 70 times, sometimes even more than that, in terms of a [forward] price-to-earnings multiple," Shawn Cruz, trading strategy manager at TD Ameritrade told TheStreet. "The FAANG's are getting more of an interesting valuation point."

Indeed, Facebook now trades at 19 times forward one-year earnings estimates, far below where it traded when it was undoubtedly a growth stock. Google trades at 22 times forward earnings, also far below where it use to trade in its hay-day as a high-growth stock. 

Clearly, the market has recreated these stocks as less of the growth stocks they used to be, but in the "market rotation" seen last week, investors interestingly exhibited a high degree of risk aversion from these two stocks. 

Facebook & Google Still Growth? 

New evidence shows brands are still shifting their advertising budgets to the internet, and the numbers show that marketers are not even close to 100% weighted to the internet in their ad spend. According to a comprehensive survey from RBC Capital Markets, analyst Mark Mahaney, a record high 75% of marketers, say they will shift 30% of their ad budgets to online. And a record high 37% of marketers will shift 50% of their spend to online.

Mahaney noted Facebook and Google continue to eat most of the market share, while their superior targeting tools enable the best return on investment for advertisers. 

For Facebook, specifically, revenue growth is expected to come in at 27% for 2019 and decelerate to 20% by 2021, but analysts continue to work in a seemingly ever-growing Instagram opportunity. Instagram's ad prices are set to rise, while its total ad load is also set to increase over the years, as management finds new avenues where ads can be useful to users. 

Meanwhile, Google, searching for its next growth driver, could enjoy the growth ride internet advertising is still on.