Any marketer will tell you, a rebrand involves a lot more than just a name change and a redesigned logo. And therein lies the problem for Meta, the new look Facebook. Behind the facade nothing has changed.
The announcement on 28 October did lead to a spike on share price but in early December the price had rolled back to even lower levels than on Metaday. So, perhaps the move possibly aimed at distracting people from the whistleblower scandal swirling around the company has more likely just confused investors.
So what's next for the social media giant? Stock projections have been weakening alongside the negative Facebook stock news. The company remains well below the record highs seen in September 2021. Can the social media behemoth recover its growth, or will it continue sloping downward?
Where is the stock now?
Facebook shares are currently trading near $325 per share, around 5% off the all-time high of $384.33 seen on 1 September 2021 in an intraday trading high. This decline in the price would be considered a correction.
Facebook’s (FANG) stock price is underperforming its other FAANG stock peers in the tech sector. At the time of writing (7 December) shares in Apple (AAPL) are at a new all-time high price while Google-parent Alphabet (GOOG) is around 2% off its recently achieved record high.
Year-to-date, the social media giant’s shares have delivered an 21% return, compared to 23% for the tech-focused Nasdaq Composite – its benchmark index –which suggests Facebook is barely keeping pace with the wider market.
Facebook becomes Meta
In what almost appeared to be a piece of top of the head, blue sky thinking towards the end of a live presentation, Facebook CEO and founder Mark Zuckerberg announced on 28 October that, henceforth, the company will be known as Meta. The social media giant, which has had a tough month fighting allegations of unethical practices by a former employee and a major outage the same day, immediately faced accusations that the rebranding was an exercise in deflection.
Zuckerberg insisted it has nothing to do with negative publicity. With all the scrutiny and public debate, some of you might be wondering why we’re doing this right now,” he said. “The answer is that I believe we’re put on this earth to create. I believe that technology can make our lives better.”
The sell-off that followed saw Facebook stock losing over 4% of its value on the day although it did bounce back as the market digested what the change meant.
So, as of 1 December, the company will leave its old ticker FB behind and start trading under MVRS. In a press release, Meta stated that while its corporate structure will not change, it will begin reporting its financials under two operating segments: Family of Apps, and Reality Labs. It added: “Today’s announcement does not affect how we use or share data.”
On 4 October 2021, American news programme 60 Minutes, part of the CBS broadcast television network, aired an interview with whistleblower Frances Haugen. Haugen, a former Facebook employee, testified that while she was working at the company, she had observed several conflicts of interest concerning what was suitable for the public and what was best for the company’s bottom line.
According to Haugen, Facebook uses algorithms to halt and ignite responses from users in order to create more interaction. The greater the exchange between individuals, the longer people are on the site, which translates into more revenue for the social media platform.
Facebook halted the algorithms that ignited interaction during the 2021 US presidential elections, but put it back immediately after the election was over. According to Haugen, Facebook did not reduce the exchanges that led to the insurrection on 6 January 2021.
Facebook stock fell 4.8% immediately on the day after the Haugen interview amid concerns over its reputational damage, which was also exacerbated by the following six-hour outage of Facebook’s online services.
On the same day of the whistleblower interview, Facebook’s entire range of services, including its main site, WhatsApp and Instagram, all went down for around six hours. Facebook later explained these outage problems as “configuration changes on the backbone routers that coordinate network traffic between our data centres”, which led to a failure of the network’s combined services.
It is without doubt these technical hiccups also contributed substantially to the social media giant’s 4.8% share-price drop on 5 October.
Could the Metaverse become the next growth driver?
Looking forward, the news around Facebook is not all bad. Facebook’s next big potential source of growth is the so-called Metaverse.
Zuckerberg unveiled the new name to about 23,000 viewers at the Connect virtual reality conference why he chose the name, Meta for the company.
“I used to love studying classics, and the word meta comes from the Greek word meaning ‘beyond,’” he said. “For me, it symbolises that there is always more to build. There’s always a next chapter to this story.”
In an earlier statement he said: “So what is the metaverse? It’s a virtual environment where you can be present with people in digital spaces. You can kind of think about this as an embodied internet that you’re inside of rather than just looking at. We believe that this is going to be the successor to the mobile internet.”
It is through the Metaverse that Facebook can possibly begin to monetise its massive $2bn acquisition of OculusVR in 2014.
In its second quarter earnings report, Facebook stated that: “Oculus is the result of the company’s ambitious augmented reality/virtual reality (AR/VR) efforts. AR/VR technology is fast emerging as a lucrative business opportunity.”
The company further added that it plans to spend over $3bn in the next 10 years on developing VR, and is investing heavily to develop its VR content ecosystem.
In its third quarter earnings announcement the company said it would be reporting Facebook Reality Labs, the home of the Metaverse, in its own reporting segment opening the way for potential investors should the company be spun off.
Facebook latest earnings
In its third quarterly earnings results posted 25 October, Facebook showed profits up 17% to $9.19bn on the same period last year. Revenues jumped 35% year-on-year to $29.01bn from $21.47bn, but fell below the $29.57bn expected by analysts, according to Refinitiv. Shares rose 3% on this news and also that the company was adding $50bn to its stock buy back programme.
Earnings per share (EPS) also rose, by 19% year on year to $3.22.
Zuckerberg said the company expected revenues in the fourth quarter to be in the range of $31.5bn to $34bn. “Our outlook reflects the significant uncertainty we face in the fourth quarter in light of continued headwinds from Apple’s iOS 14 changes, and macroeconomic and Covid-related factors.” he said.
In its second-quarter earnings, Facebook reported revenues of $29.07bn with EPS of $3.67. That was a massive leap from the $18.69bn revenue and an EPS of $1.82 in Q1. Facebook’s daily active users (DAUs) and monthly active users (MAUs) were 1.91 and 2.80 billion on average respectively for June 2021, an increase of 7% year-over-year.
Facebook technical analysis
The daily chart of Facebook shares shows they are poised to test the trend-line support near $323. A break of this level would generate a test of the May 2021 lows at $299. The 10-day exponential moving average (EMA) is seen as resistance near $318.
Additional support is seen near the 50-day EMA at $320. The 10-day EMA has crossed below the 50-day EMA, which means a short-term downtrend is now in place.
Facebook’s share price is oversold. The relative strength index (RSI) prints a reading of 49.
While prices hit a lower low for the current move, the RSI did not, meaning negative momentum is decelerating. Short-term momentum is also negative as the fast stochastic recently generated a crossover sell signal.
A broader weekly view of Facebook stock shows that the price is approaching support near the 50-week EMA of $318. Weekly prices are also oversold as the fast stochastic prints a reading of five, below the oversold trigger level of 20.
Facebook share price forecast 2021 to 2022
The data from MarketBeat on 1 November gives a positive FB stock forecast as it shows that the average 12-month price target for the FB stock is $399.68. This is based on 40 analyst ratings with a high target price of $466 and a low of $300.
While 32 analysts have presented Facebook as a buy, two go for a strong buy and six as a hold.
What do analysts say about Facebook?
According to Zacks Investment Research, Facebook is still well positioned to take advantage of international users’ growth across its multiple platforms.
“Facebook is benefitting from steady user growth across all regions, particularly Asia Pacific,” Zacks analysts said in a research note dated 13 October.
Ever-growing online shopping sales also continue to be a driver: “Advertising revenues are benefitting from the ongoing shift to e-commerce,” Zacks added.
Yet in the shorter-term scenario, things look a little more bleak: “Facebook expects revenue growth rate for the third and fourth quarters of 2021 to decelerate significantly on a sequential basis,” Zacks concluded.
When considering analyst commentary, it’s important to keep in mind that they can and do get their estimates wrong. You should always conduct your own research before making any investment or trading decision. Keep in mind that past performance is not an indicator of future returns.
The decline in Facebook shares has provided investors with an opportunity if they perceive that the average price target will be reached. The price is currently trading near $324 per share, and the average target price is 19% higher.
Note that predictions are often wrong. You should always conduct your own research before making any investment or trading decision.
The upward trend in earnings revisions supports a rise in the Facebook stock price, but sentiment following the whistleblower interview and outage is negative, which could weigh further on the stock.
Whether Facebook is a suitable investment for you will depend on your personal circumstances. You need to research the stock and decide if it meets your needs and appetite for risk.
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