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Gabby Jones/Bloomberg
In the wake of
Facebook’s
first big scandal in 2018, Barron’slabeled the company a sin stock—controversial but still full of upside.
In the years since, Facebook’s sins have continued to mount, but so have its users. The social network now counts 2.6 billion members across its Facebook, Instagram, and WhatsApp platforms, which serve to amplify every controversy and misstep from the company.
Facebook (ticker: FB) is in the middle of a global boycott from 1,000 advertisers, brought to task by a coalition of civil-rights groups that cite hate speech and voter suppression that appear on its platform.
Most stocks would crater under that kind of pressure, but not Facebook. Its shares have appreciated roughly 4% since the organizers announced their 10 demands in June, which include fact-checking political advertisements.
Facebook is well insulated from advertiser defections, even with big brands like
Coca-Cola,
Unilever,
and
Starbucks
pausing their spending. Facebook has eight million customers, mostly small and medium-size businesses, buying ads.
“The boycott shouldn’t be a material issue for Facebook,” says RBC Capital Markets analyst Mark Mahaney. “It will only be an issue if management makes it one—if they’re really tone deaf and perceived as unwilling to listen.”
And even that might not matter to investors. Facebook’s discussions with the boycott organizers haven’t gone particularly well. The Anti-Defamation League called a meeting on Tuesday “quite frustrating.”
“They want Facebook to be free of hate speech, and so do we,” Facebook said in a statement to Barron’s. “That’s why it’s so important that we work to get this right.”
While the boycott has had an impact on Facebook policies—including an about-face on pulling down ads deemed racist—the civil-rights organizations seem to recognize the limits of their efforts when it comes to the business itself.
“I’m not going to tell shareholders to dump their stock,” Color of Change President Rashad Robinson told Barron’s on Thursday. “People who are investing and making money off Facebook should ask themselves the same questions advertisers are: ‘Do I still want to keep my corporate brands next to white nationalists’ content—is that the type of thing I want to make money off of?’ ”
“We’re not going to put a dent in their P&L. It’s a $70 billion company,” says Jonathan Greenblatt, the CEO of the Anti-Defamation League, referring to Facebook’s profit-and-loss statement.
Wall Street estimates for Facebook’s 2020 sales and earnings have barely budged in the past month. In fact, its revenue outlook is slightly higher than it was at the end of May, before the boycott began. Analysts currently forecast Facebook to generate net income of $21 billion this year, or $7.30 a share, up 14% from a year ago. And they see $77 billion in revenue, up 9%, despite the pandemic.
Facebook is now worth about $700 billion, but it’s still the smallest of the five big tech firms, a group that includes
Apple
(AAPL),
Microsoft
(MSFT), Amazon.com (AMZN), and
Alphabet
(GOOGL).
Among those big tech names, Facebook looks relatively cheap. Shares trade at 29 times earnings estimates for the next 12 months. That’s more than Apple, but less than Alphabet, Microsoft, and Amazon, the last of which trades at a whopping 112 times forward earnings.
Facebook stock looks even more affordable, considering that Wall Street expects Alphabet and Amazon earnings to contract this year. Analysts project Facebook’s revenue to jump 24% in 2021, the best among the big tech companies.
Wall Street views the boycott as a situation that Facebook should win by default. “Facebook management won’t screw it up,” Mahaney says.
Meanwhile, Covid-19 shutdowns have made Facebook more important than ever, Mahaney says. People want to be connected during the crisis, and there’s only one platform to use: Facebook. “You’re not going to Snap or YouTube or
Twitter
to be with your friends and family,” he says.
Write to Max A. Cherney at [email protected]
