Facebook, Inc. (NASDAQ:FB) looks like an attractive proposition over the long term

Facebook, Inc. (NASDAQ:FB) looks like an attractive proposition over the long term

Facebook, Inc. (NASDAQ:FB) looks like an attractive proposition over the long term

Investing in high-quality businesses trading at attractive valuation levels can lead to superior returns over the long term. However, finding these kinds of opportunities is much easier said than done.

More importantly, when a good business is trading at a discounted valuation, this is usually because there is some uncertainty hurting the stock in the short term, so capitalizing on these opportunities requires a long-term time horizon and a contrarian mindset.

In the case of Facebook (FB), regulatory risk, transitioning business dynamics, and general market conditions are weighing on the stock in recent months. On the other hand, the business fundamentals look as strong as ever and the stock is fairly attractively valued for such a high-quality business.

Strong Fundamentals

The data privacy scandals have produced some reputational damage to Facebook. Besides, many users are transitioning from the traditional Facebook platform towards Instagram and WhatsApp, and ads in stories generally carry lower prices than newsfeed ads. In addition to this, the company has significantly increased its spending in key areas related to security, data privacy, and product development in recent quarters.

These factors are making financial performance harder to predict in the short term, and they are hurting the stock price. However, the cold hard numbers show that Facebook keeps firing on all cylinders as of the most recent earnings report.

The company produced $16.9 billion in revenue during the second quarter of 2019, an increase of 28% versus the same quarter in the prior year. The figure surpassed market estimates, and the growth rate even accelerated versus a 26% year over year increase in revenue during the first quarter of 2019.

GAAP operating income was $4.6 billion during the quarter, representing a 27% operating profit margin. Excluding the impact of the FTC accrual, the operating margin would have been approximately 12 percentage points higher. The company ended the quarter with 39,700 full-time employees, up 31%. Even if Facebook keeps aggressively investing in areas such as security and product development, the business model keeps generating outstanding profitability.

More than 2.1 billion people used at least one of Facebook’s apps on a daily basis in June of 2019 and more than 2.7 billion people were active on a monthly basis. This massive scale is a crucial source of competitive advantage for a market leader in social media.

The bigger the size of the platform, the more value it generates for its users. Platforms such as Facebook, Instagram, Messenger, and WhatsApp are increasingly more valuable when they provide more opportunities for interactions of all kinds. Users attract each other to the leading social networks, creating a virtuous cycle of growth and increased competitive strength for Facebook over the long term.

The online advertising industry is not only taking money away from traditional media but also enlarging the size of the cake by attracting new advertisers. Online advertising can be done with smaller budgets and in a more personalized way than traditional advertising, so many small businesses that cannot afford traditional advertising have a viable opportunity in the online advertising channels.

According to data from ARK Investment Management, five years from now, the advertising market as a whole could be worth as much as $900 billion, and two-thirds of that money could come from online advertising.

Technical Indicators

Overall, the bias in prices is: Downwards.

By the way, prices are vulnerable to a correction towards 185.18.

The projected upper bound is: 186.32.

The projected lower bound is: 168.45.

The projected closing price is: 177.39.

Candlesticks

A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 4 white candles and 6 black candles for a net of 2 black candles. During the past 50 bars, there have been 21 white candles and 29 black candles for a net of 8 black candles.

An inverted hammer occurred. If this occurs during a downtrend (which appears to be the case with FACEBOOK INC A) it implies a reversal. Look for a confirmation of the reversal on the bar.

A long upper shadow occurred. This is typically a bearish signal (particularly when it occurs near a high price level, at resistance level, or when the security is overbought).

A shooting star occurred (a shooting star has a small real body near the bottom of the candle and a long upper shadow). During an uptrend the long upper shadow indicates that the bears are gaining control and a top may occur.

A spinning top occurred (a spinning top is a candle with a small real body). Spinning tops identify a session in which there is little price action (as defined by the difference between the open and the close). During a rally or near new highs, a spinning top can be a sign that prices are losing momentum and the bulls may be in trouble.

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 77.3162. This is not an overbought or oversold reading. The last signal was a sell 0 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 41.34. 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 60 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 -43. This is not a topping or bottoming area. The last signal was a buy 3 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 sell 10 period(s) ago.

Rex Takasugi – TD Profile

FACEBOOK INC A closed down -1.930 at 177.750. Volume was 36% below average (neutral) and Bollinger Bands were 9% narrower than normal.

Open     High      Low     Close     Volume___
178.260 180.370 177.720 177.750 10,084,896
Technical Outlook 
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bullish
Moving Averages: 10-period     50-period     200-period
Close: 178.58 184.65 176.13
Volatility: 25 31 38
Volume: 14,070,175 13,390,545 17,523,256

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 0.9% above its 200-period moving average and is in an downward trend. Volatility is low 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 6 periods.

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