Facebook Inc. (NASDAQ: FB) stock heads lower as the tech industry has been experiencing tremendous pressure citing to the coronavirus outbreak, competition, and market weakness. The market failed to recognize the value of the stock and the company’s stock, which is bearish, is undervalued at current levels.
The company continues to face uncertainty as its core business relied entirely on online advertising revenue. The company is facing a slow and progressive reduction in the growth rate as the core business reached a saturation point and losing its shine, which lowered its market share.
Revenue Trend
The social networking giant is experiencing a downward trend in the revenue growth rate in the future, which is forecast to fall from a 25% rate in 2019 to a 20% rate in 2020 and 17% by 2022. However, the company will see an improvement in the operating margins and earnings driven by the cost leverage.
The market experts believe that in order to avoid strong addiction to advertising revenue only for top-line growth, Facebook should be trying to diversify into other businesses. Finding alternative revenue sources other than online advertising could be a time constraint. But, with global users’ networks in several applications and cash, the company could try to find the source at a slightly faster pace.
The company, off lately, has been shifting its focus to diversifying the business into new areas including video streaming, after launching its cryptocurrency named Libra. The company and its partners are now reportedly considering the Libra project redesign in order to accept multiple coins including those issued by central banks and backed by US dollar, euro, and other currencies.
Competition & Results
Facebook and Alphabet’s (NASDAQ: GOOGL) Google continue to lose their advertising revenue to Amazon (NASDAQ: AMZN) as advertisers prefer the Amazon ad platform due to a change in the habits of the shoppers. The habits have changed from looking into Google to Amazon as the first option of search and compare prices.
For the fourth quarter, Facebook reported an increase in profit and revenues as the social media firm continued to expand its user base. The number of daily active users rose 9% to 1.66 billion, while that of monthly active users advanced 8% to 2.5 billion. Advertising revenues rose 25% to $20.7 billion and other revenues moved up 26% to $346 million.
Stock Performance
Shares of Facebook opened lower on Thursday at $186.78, which is down 2.13% from Wednesday’s close of $191.76. Despite rising over 8% in the past year, the stock has fallen over 7% in the past three months and over 11% in the past month. The shares were lower than the 50-day moving average of $209.69 and the 200-day moving average of $197.12.
The shares are undervalued as the price/earnings-to-growth (PEG) ratio, which is considered to be an indicator of a stock’s true value, is lower at 0.84 than the forward P/E of 20.33. The stock, which has a 25% estimated return, has a negative performance outlook in the near and long-term due to weakness surrounding the company’s growth.
Virus Attack
The COVID-19 spreading globally has hit the stock markets hard. A lot of companies were impacted by the coronavirus outbreak, which led to scaling down the production and lowering the forecast for the upcoming quarter. Major businesses like Amazon and Facebook reported the first coronavirus cases in their US workforces.
There were more than 90,000 confirmed cases of the virus around the world and 3,000 deaths as the crisis deepened globally. California joined the list of states declaring emergencies with 162 confirmed cases across the US. The Congress is likely to approve $8.3 billion in emergency spending to fight the virus, according to the New York Times.