The towering giants of tech have made a remarkable comeback since their tumble in 2018.
Facebook’s [FB] share price, in particular, has made a resounding turnaround from its 25.71% fall last year. The company had been plagued by the scandals of Cambridge Analytica and Russian disinformation.
Facebook’s share price has climbed an impressive 53.58% so far this year to trade at $201.34, as of 9 December’s close, its biggest annual gain since 2013 – the year after it went public.
The record rise has even outperformed the Nasdaq’s 29.9% YTD climb. The combined rise in value of Facebook and its fellow tech companies – Apple [AAPL], Alphabet [GOOGL], Amazon [AMZN] and Microsoft [MSFT] –accounted for more than 20% of the S&P 500’s total returns this year, through the end of November, according to the New York Times.
However, this year has not been without trouble. Facebook has faced intensifying scrutiny from multiple fronts. It has faced criticism for its mishandling of user’s data and its decision to run political ads without fact-checking them as well as Congressional investigations into if it has been guilty of anti-competitive conduct and an antitrust investigation by the European Commission.
Despite the negative headlines, investors and traders alike appear to be unphased, with its stock price still on track to hit a five-year annual high. So, what’s behind Facebook’s rally?
Is a breakout imminent?
The rally has been driven, in part, by the trio of rate cuts from the Fed this year that helped to buoy shares. Facebook’s better-than-expected third quarter results also more than offset its disappointing earnings results in the first and second quarters, sending its stock up 1.8% the day after its release.
The company managed to find new areas for growth during the quarter, despite increasing competition in the space, which boosted total revenues to $17.65bn and earnings to $2.12 per share.
“We had a good quarter and our community and business continue to grow,” CEO Mark Zuckerberg said in a statement. “We are focused on making progress on major social issues and building new experiences that improve people’s lives around the world.”
Indeed, the company’s results, which reinforced that neither advertisers nor users had been adversely impacted by the company’s troubles, prompted Piper Jaffray to give the stock an overweight rating, with a price target of $230, representing a 15% upside.
“We had a good quarter and our community and business continue to grow” - CEO Mark Zuckerberg
The move was due to the continued shift of advertising funds spent online, which is forecast to grow about 10% over the next few years to 60%, Investor’s Business Daily notes.
“We do not expect the flow of news related to government inquiry and investigation into the company’s business practices, data privacy, election tampering, etc., will subside anytime soon,” Piper Jaffray analyst Kim Yung was quoted as saying in IBD.
“While this does pose a risk to Facebook shares, we believe most investors have become comfortable with the fact that this is an ongoing issue with risk of periodic multibillion-dollar fines.”
With Facebook’s stock currently trading above $200 Bret Kenwell, writing in InvestorPlace, believes it could surpass the previous week’s $203.80 high. Beyond that is its 52-week high of $208.66 and Kenwell suggests that it seems reasonable that the stock price could achieve $230 in 2020.
However, if its share price falls below the 20-day moving average then it could see more selling, Kenwell adds, which may be a signal that it needs more consolidation.
Facebook cracks down on ad fraud
In an effort to clampdown on the mistrust surrounding its advertising business, Facebook has been taking more proactive action in recent months.
On 5 December, the company sued Hong Kong-based ILikeAd Media International for allegedly baiting people into clicking on bogus links so it could install malware and run ads for prohibited goods.
|PE ratio (TTM)||32.43|
Facebook share price vitals, Yahoo finance, 12 December 2019
Three months earlier, Facebook opened a case against two app developers – LionMobi and Jedimobi – alleging that they engaged in a scheme to generate invalid clicks on ads to make money by installing malware onto people’s phones.
While these recent cases reveal that the company is actively working to improve its image, they are just one part of its very scrutinised business. The giant faces battles from the likes of democratic hopefuls Elizabeth Warren, who has made a case for breaking up the company. Meanwhile, regulators are currently looking to block Facebook’s Libra cryptocurrency and on top of this the company faces a whirlwind of concerns related to data privacy.
However, and in spite of the concerns, the stock appears resilient. It currently has a consensus buy rating among 51 analysts, according to CNN.