Concerns about a company are legitimate, but it remains necessary to look at its fundamentals when investing long-term. Heading toward its Q3 earnings release next week, investors have been shaken by events surrounding Facebook, Inc. (FB) causing its valuation to tumble over the last month while many other tech stocks have gained. However, some analysts believe these worries are overblown. (See Top Smart Score Stocks on TipRanks)
One of those bullish voices is Brent Thill of Jefferies Group, who wrote that due to the slight slide in price, “FB’s valuation is among the most attractive in Internet.” He understands the concerns over retail supply chain disruptions, Apple’s (AAPL) shift in privacy settings hurting advertisers, and a high FY22 guidance as legitimate, although heartily disagrees that growth will decelerate.
His confidence is shown by the Buy rating he assigned, as well as the $440 price target for the stock. This target represents a possible 12-month upside of 29.12% from current levels.
Taking the side of the bulls in this heated debate, Thill asserts that all of these concerns are already baked into the discounted share price. He believes that any supply chain-induced slowdown in retail ad spending has already been taken into consideration by investors. Moreover, he sees the Wall Street consensus estimates on FB’s Q3 earnings as too conservative, allowing for an easy beat.
Meanwhile, he added that the social media and technology company has been “aggressively” investing in virtual reality and metaverse innovations, with big plans to shift toward that area in the near future.
From Thill’s research, he could not find evidence which showed less than robust ad spending. Additionally, Instagram Reels has now incorporated ads and is ramping up its revenue stream. The money brought in from Reels is not included in Thill's current calculations, thus only represents a bonus if it turns out to be significant. Furthermore, the analyst enthusiastically mentioned that “Reels and Shops could potentially be multi-billion ad businesses in ‘22,” pointing to Facebook’s long-term growth prospects.
According to TipRanks website traffic tool, visits to facebook.com have decreased -2.87% quarter-over-quarter, with the share price also falling –2.39% over that period. From the same quarter last year, visits to FB’s website are down 13.53%. Considering that facebook.com is a main component of its product, this metric is noteworthy.
Disclosure: At the time of publication, Brock Ladenheim did not have a position in any of the securities mentioned in this article.
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