Facebook (NASDAQ:FB) Stock Analysis – Slower Growth, Higher Valuation

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Facebook
Ticker: NASDAQ:FB
Price: $261.40

Facebook Outlook

Unfortunately, it’s hard to get a high-frequency read on ad spending trends. But — because ad spending almost always follows consumer spending — we can use high-frequency consumer spending data as a proxy for ad spending.

J.P. Morgan’s daily consumer spending tracker — which tracks spending through all JPM issued payment cards — shows that consumer spending has continued to recover at a healthy pace throughout August and September. There’s no reason to believe that this recovery will be derailed anytime soon. Rather, the better we get at balancing Covid-19 risks with sustaining economic quasi-normalcy, the more consumer spending should rebound to pre-Covid levels.

As it does, ad spending trends will recover back to pre-Covid levels, too.

Thus, in the fourth quarter, I fully expect ad spending trends to rebound meaningfully. That will create a rising tide which will lift all boats in the the ad industry, especially Facebook, since the company is the most important digital ad platform on the planet.

Third and fourth quarter revenue numbers will come in well ahead of expectations. Those better-than-expected numbers will push FB stock higher.

Huge Instagram Reels Uptake

Facebook recently launched Instagram Reels, a short-video feature which is essentially Facebook’s copycat of TikTok.

Facebook management hopes that Reels will do to TikTok in 2020/21, what Stories did to Snap (NYSE:SNAP) in 2016/17 — which is essentially steal all of the viral app’s engagement and momentum, and channel it into the Instagram ecosystem.

I think that’s exactly what will happen.

There’s already a huge exodus happening on TikTok, partially because of concern regarding U.S.-China geopolitical relations and partially because the content on the app has become too political and polarizing.

At the same time, Instagram Reels engagement is flying higher, largely because it looks, feels and acts just like TikTok — except without the geopolitical risks and polarizing political content. Plus, Reels offers far wider distribution, given that Instagram has far more users than TikTok.

This is just the beginning of the huge TikTok-to-Reels transition. As it continues over the next few months, it’ll show up in Facebook’s earnings reports via better-than-expected user and revenue numbers. Again, those better-than-expected numbers will spark further gains in FB stock.

Big Holiday Season for Facebook Shops

Amid the Covid-19 pandemic, Facebook has aggressively expanded its e-commerce capabilities on Facebook and Instagram through a new initiative called Shops.

Shops is a fully integrated service where consumers can seamlessly transition from product discovery on Facebook and Instagram, which is already happening, to product selection. Shops will promote selection by allowing merchants to easily create mini-shops in-app with catalogs of products and services. To complete the purchase, Shops will enable users to checkout in Facebook or Instagram, if the merchant has enabled checkout services.

Shops is the quintessential solution Facebook has been seeking to crack the social commerce code and seamlessly turn robust discovery today into robust shopping tomorrow.

Long-term, I see it as the foundation upon which Facebook constructs an e-commerce empire.

Business Summary

Facebook, Inc. is focused on building products that enable people to connect and share through mobile devices, personal computers and other surfaces.

The Company’s products include Facebook, Instagram, Messenger, WhatsApp and Oculus.

Facebook enables people to connect, share, discover and communicate with each other on mobile devices and personal computers.

Instagram enables people to take photos or videos, customize them with filter effects, and share them with friends and followers in a photo feed or send them directly to friends.

Messenger allows communicating with people and businesses alike across a range of platforms and devices.

WhatsApp Messenger is a messaging application that is used by people around the world and is available on a range of mobile platforms.

Its Oculus virtual reality technology and content platform offers products that allow people to enter an interactive environment to play games, consume content and connect with others.

Price Performance

Relative Valuation

Technical Indicators

Overall, the bias in prices is: Sideways.

By the way, prices are vulnerable to a correction towards 259.02.

The projected upper bound is: 280.36.

The projected lower bound is: 242.16.

The projected closing price is: 261.26.

Candlesticks

A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 2 white candles and 8 black candles for a net of 6 black candles. During the past 50 bars, there have been 19 white candles and 31 black candles for a net of 12 black candles.

Three black candles occurred in the last three days. Although these candles were not big enough to create three black crows, the steady downward pattern is bearish.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 15.5005. This is an oversold reading. However, a signal is not generated until the Oscillator crosses above 20 The last signal was a sell 3 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 46.87. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 31 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -38. This is not a topping or bottoming area. The last signal was a sell 2 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 13 period(s) ago.

Rex Takasugi – TD Profile

FACEBOOK INC A closed down -4.530 at 261.400. Volume was 44% below average (neutral) and Bollinger Bands were 26% narrower than normal.

Open     High     Low     Close     Volume
265.530  268.550  259.880 261.400   13,586,955
Technical Outlook
Short Term:        Oversold
Intermediate Term: Bearish
Long Term:         Bullish
Moving Averages: 10-period     50-period      200-period
Close:           266.27        268.23         224.16
Volatility:      37            44             57
Volume:          18,256,036    22,676,796     23,570,516

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

FACEBOOK INC A is currently 16.6% above its 200-period moving average and is in an downward trend. Volatility is relatively normal as compared to the average volatility over the last 10 periods.

Our volume indicators reflect volume flowing into and out of FB.O at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on FB.O and have had this outlook for the last 24 periods.

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