Shares of Facebook Inc. (FB) are up a little more than a percent in the calendar year and have gained more than 30% over the last 12 months as the social media company continues to dominate digital advertising alongside Alphabet Inc.'s (GOOGL) Google.
But even as the company remains one of the top performing equities when looking at the market as a whole, when you delve down into its peer group, namely the its FANG brethren, Facebook's growth is challenged by its current market saturation and the messy social and political issues that continue to weigh on its user growth.
Though its stock near an all-time high, Facebook hasn't performed as well as FANG stocks, such as Action Alerts Plus holding Amazon Inc. (AMZN) and Netflix Inc. (NFLX) , said Michael Pachter, the managing director of equity research at Wedbush Securities. Pachter said Facebook.com is approaching market saturation, especially compared to other top tech companies that still have abundant room for growth.
"I think Facebook is a victim of getting closer to its addressable market faster than Amazon and Netflix," Pachter said. Amazon, for instance, has only tapped about 4% of the addressable retail market, according to a Jan. 3 study from research firm One Click Retail, while Netflix still has room to grow both domestically and internationally.
At the same time, just as Twitter Inc. (TWTR) struggles to escape its bot problem, Facebook has been dragged down by constant controversies around its inability to control its content. Though Facebook is constantly tweaking and updating its checks and balances, Pachter said the many controversies surrounding the company are already influencing its stock.
While Facebook reported record earnings for the fourth quarter in January, CEO Mark Zuckerberg said that changes to the feed algorithm that reduce the number of viral videos users see resulted in visitors spending 5% less time on the site -- roughly 50 million hours per day.
To be sure, Facebook, a holding in Jim Cramer's Action Alerts PLUS charitable trust portfolio does have upside despite its challenges.
"We still believe that the stock has plenty of room to run now that investors have warmed up to the newsfeed and other platform changes that management has and will install," wrote the AAP team in a Feb. 21 note denoting that the trust had sold some its Facebook shares at around $180 a pop. "Management believes those changes will lead to increased monetization opportunities, and this should support the company's growth trajectory."
Shares of Facebook traded up about 1% Thursday to $179.54, putting the company's yearly gains at just under a percentage point. Shares have increased 33% over the past 12 months.
Others on Wall Street noted that Facebook's worth is the product of multiple factors: the number of users, the frequency of visits and the duration of visits along with the number of ads delivered and the rates charged for ads. So, if in the long run Facebook can get more users to stay on the site longer thanks to a better visitor experience, it doesn't really matter if they advertise less frequently.
"But it's a long road before they get it all right," Pachter said.
Despite the decline of users in the fourth quarter and brutal headlines, Needham & Co. senior analyst Laura Martin noted that Facebook still comes out on top when earnings come around, keeping investors happy.
Both analysts noted that there is still plenty of growth potential for Facebook's other, less mature products, especially WhatsApp.
"Facebook investors care more about the upside," Martin said. "The upside comes from those other three."
In the past year, Facebook has hired thousands of people to monitor content on the site after users streamed violent and criminal acts on Facebook Live, tried to crack down on its fake news epidemic and failed to stop the spread of Russian propaganda.
But Pachter said that Facebook's response to its own flaws has been largely self-serving, most recently with Facebook execs commenting publicly on the issue via Twitter.
Most of the coverage of Russian meddling involves their attempt to effect the outcome of the 2016 US election. I have seen all of the Russian ads and I can say very definitively that swaying the election was *NOT* the main goal.— Rob Goldman (@robjective) February 17, 2018
"They created a platform that allowed this to happen, and I don't think they intended for it to happen, but it was easy to do," Pachter said. "It's easy to create a fake account, and I think that that's a problem."