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Stock of the week: Facebook (FB)

We're trying something new here at Blackbull Markets! With MT5 on the Horizon, Blackbull Market clients will soon be able to have access to over 350 US stocks to trade. Hence, we're adding a new weekly article: Stock of the week! If you have any questions or have any stocks, in particular, you want us to cover in more detail, let us know.

Up 25.22% for the year. Current Stock Price: $261.30

Stock of the Week: Facebook (FB)

Facebook's Business:

We all know what Facebook is – however, broken down, they are a social media conglomerate comprised of their primary business Facebook with full ownership stakes in social media platforms Instagram and WhatsApp. All of their companies combined host 2.5 Billion users. To put that into perspective, there are an estimated 7.8 billion people on this planet, therefore their platforms host just under a third of the population.

Facebook, like many tech firms, generate revenue through selling advertising on their platforms. Last year, Facebook and its family of products generated $70.697 Billion in revenue, up from $55.838 Billion in 2018. Currently, founder Mark Zuckerberg is the CEO of the company.

Facebook's Catalysts:

Facebook, like many tech firms, are flush with cash and have high operating margins. Over the past two years, Facebook has had an average net operating margin of 40%. Due to the nature of the online business, it has held steady during the peak Coronavirus pandemic as everyone retreated to their homes, reliant on the internet.

Facebook currently gets the bulk of its advertising revenue from its main products, Facebook, and Facebook messenger. They have slowly introduced advertisements on Instagram; however, they have not monetized WhatsApp whatsoever. These two products alone, if monetized to their full potential, may provide a significant upside to their revenue and stock price. This is not to mention the other avenues they have stated to be perusing, such as Facebook Shops and dating.

Facebook's Risks:

Facebook have seen their fair share of scrutiny. From the Cambridge Analytica scandal in 2018 to the recent boycott in advertisers due to Mark Zuckerberg's relatively non-governance stance for news on Facebook. Events like these risks a decline in revenues if boycotts gain traction. However, a bulk of Facebook's income comes from small to medium-sized businesses, reliant on the 2.5 Billion active users to promote their goods or services. Therefore, these risks are quite low and should not post an immediate threat in the long run to the stock price.

Their stock is at an all-time high. Today, the stock sits at $261.08c, trading at a 33 times price-to-earnings multiple.

Tailwinds have come from the Coronavirus pandemic, forcing people to stay at home alongside the government having a negative stance on TikTok. Furthermore, they recently announced their TikTok competitor, Facebook reels. If President Donald Trump is successful in banning TikTok in the United States, this will be a massive tailwind for Facebook.

Facebook - Conclusion:

Facebook is likely poised to excel in the longer term, especially with Mark Zuckerberg at the company's helm. He has shown to have shareholders' interests at heart, mainly because he currently owns a 13.3% stake.

NASDAQ sits above 11,000 after Trump TikTok Ban

NASDAQ is up 1% fueled by President Donald Trump issuing an executive order banning U.S. residents from doing business with Chinese owned TikTok and WeChat 45 days from now.

NASDAQ in Blue, Facebook (FB) in Orange

With the election 90 days away, some critics may point to this latest move as a hail Mary to gather up votes before the election. However, the U.S. government has cited security risks that take users' data from both apps and allow the Chinese Communist Party access to American's personal information. While TikTok denies all claims regarding the CCP's access to the platform's information, TikTok's terms and conditions state that the company may share information with its parent, subsidiary, or other affiliates, including Chinese businesses and law enforcement legally required to do so.

Paul Triolo, Head of Global Technology Policy at Eurasia, states the ban is akin to a "U.S. – China technology war." "The U.S. government is targeting these two very popular Chinese apps, and basically, they have national security problems." Furthermore, from the think tank New America, Graham Webster states that "A ban on WeChat could be consequential because it would practically shut down communication between U.S. and China."
However, specifically with TikTok, President Donald Trump has given them an out: Sell their U.S. related parts to an American company. The logic being, a trusted American company, will not turn over U.S. data to the Chinese government. Recently, the company that has been in talks to purchase the U.S. operations of TikTok is Microsoft. Furthermore, with a stellar reputation and over $184 Billion on the balance sheet, the U.S. technology conglomerate is in a good position for any acquisition.

Microsoft x TikTok in the future?

This will test Satya Nadella's deal-making skills, as it is either a ban on TikTok or a purchase from Microsoft; therefore, they have a decent amount of leverage over TikTok regarding the acquisition price. Furthermore, with a suggested price of $50 Billion for the U.S. business without any negotiation, around $25 - $30 Billion on $3 Billion of earnings will represent approximately 8 – 10 times earnings acquisition price. In comparison, Facebook currently trades at 30 times earnings. This may be a lucrative deal if Microsoft can pull it off.

NASDAQ futures are up around 1%,sitting healthily about the 11,000 level, Facebook led the charge up 6.59% as they take advantage of the situation by releasing their TikTok alternative, Facebook reels. Just one week ago, Facebook's CEO, Mark Zuckerberg, testified to Congress just last week regarding anti-competitive practices.

With Non-farm payrolls coming up, retaliation from China and/or further pressure from the U.S. government may provide a volatile trading session.