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Facebook, Inc. (NASDAQ:FB) Will Weather the Storm

Facebook, Inc. (NASDAQ:FB) Will Weather the Storm

Shares of social media and digital advertising giant Facebook (NASDAQ:FB) have plummeted over the past six weeks on concerns that the rapidly spreading novel coronavirus will kill digital advertising globally for the foreseeable future. FB stock is consequently down about 30% from its mid-February highs.

These concerns are completely rationale. The coronavirus pandemic has brought the economy to a screeching halt. Consumers aren’t going out. They aren’t spending money on things outside of consumer staples. If consumers aren’t spending as much on discretionary items, why would advertisers continue to advertise as much to those consumers?

They won’t. They’ll cut their ad budgets. Ad spending trends will deteriorate. And Facebook’s growth trajectory will flatten out.

All of that makes complete sense. And yet, it also makes complete sense to buy the dip in Facebook stock today. For five big reasons:

  1. The coronavirus pandemic won’t last forever. Modeling suggests that “peak coronavirus” is a few weeks away, while spread will hit near-zero by May or June.
  2. Facebook will weather the slowdown better than peers. As a big digital ad platform, Facebook should increase its share of ad dollars during the pandemic.
  3. Ad spending trends will rebound in the second half of 2020 and into 2021. The economy will normalize and rebound in the back-half of 2020, once the virus is contained, which will lead to a rebound in digital ad spending trends.
  4. Facebook stock is ridiculously cheap. At 18-times forward earnings, FB stock is about as cheap as it gets for a 20%-plus revenue grower with big profit margins.
  5. Upside potential over the next few months is very high. Even after taking down my revenue and profit projections for the company, I still see FB stock rallying above $200 before the year is out.

Coronavirus Headwinds Are Temporary

The coronavirus is a big, scary and volatile crisis. But, social distancing works in thwarting the spread of the virus. See China, South Korea, Japan, Iran and Italy.

Assuming countries across the globe maintain strict social distancing measures, then current modeling projects that the coronavirus pandemic will peak in mid-April, and be largely stomped out by late May or early June. Thus, by the summer of 2020, coronavirus-related economic headwinds will be largely in the rear-view mirror.

Facebook Will Weather the Storm

During the coronavirus outbreak, Facebook is better positioned to weather the storm than peer digital ad platforms.

That’s because, next to Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) Facebook is one of the biggest digital ad platforms in the world, with unparalleled reach and a long track record of delivering outstanding ad spending returns. Amid this pandemic, as advertisers cut back on spend, they will cut back spend more-so on smaller, less established digital ad platforms. Facebook ad budgets will be cut less.

Consequently, thanks to its size and incumbency, Facebook’s revenue trends should only be marginally impacted during the pandemic.

Technical Indicators

Overall, the bias in prices is: Downwards.

Note: this chart shows extraordinary price action to the downside.

The projected upper bound is: 186.79.

The projected lower bound is: 142.21.

The projected closing price is: 164.50.

Candlesticks

A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 5 white candles and 5 black candles. During the past 50 bars, there have been 27 white candles and 23 black candles for a net of 4 white candles.

A rising window occurred (where the top of the previous shadow is below the bottom of the current shadow). This usually implies a continuation of a bullish trend. There have been 3 rising windows in the last 50 candles–this makes the current rising window even more bullish.

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 38.1518. This is not an overbought or oversold reading. The last signal was a sell 4 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 48.55. 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 buy 14 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 87. This is not a topping or bottoming area. The last signal was a sell 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 buy 8 period(s) ago.

Rex Takasugi – TD Profile

FACEBOOK INC A closed up 11.370 at 165.550. Volume was 100% below average (consolidating) and Bollinger Bands were 14% wider than normal.

Open     High      Low     Close     Volume___
160.150 166.200 158.510 165.550 2,936
Technical Outlook 
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bearish
Moving Averages: 10-period     50-period     200-period
Close: 160.76 185.88 192.40
Volatility: 88 83 48
Volume: 22,965,514 23,489,954 16,288,435

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 gapped up today (bullish) on light volume. Possibility of a Common Gap which usually coincides with a lack of interest in the security. Common Gaps are fairly irrelevent for forecasting purposes. Four types of price gaps exist – Common, Breakaway, Runaway, and Exhaustion. Gaps acts as support/resistance.
FACEBOOK INC A is currently 14.0% below its 200-period moving average and is in an downward trend. Volatility is high 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 44 periods. Our momentum oscillator has set a new 14-period high while the security price has not. This is a bullish divergence.

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