Facebook (FB) is one of the largest and most widely used social media platforms in the world. As of October 2022, Facebook had over 2.96 billion monthly active users worldwide. The company’s stock price has seen ups and downs over the years, reflecting both the growth of the platform as well as various controversies surrounding issues like data privacy and election interference.
Looking ahead, there are several factors that could influence Facebook’s stock price and financial performance. Here we will explore key considerations around Facebook’s user growth, advertising revenue, competition, regulation, and other challenges that could impact the company’s future stock price.
Facebook’s User Growth
Facebook has seen tremendous user growth since launching in 2004. Here is a snapshot of Facebook’s global monthly active users (MAUs) over the past decade:
| Year | Global MAUs |
|---|---|
| 2012 | 1.06 billion |
| 2013 | 1.23 billion |
| 2014 | 1.39 billion |
| 2015 | 1.55 billion |
| 2016 | 1.86 billion |
| 2017 | 2.20 billion |
| 2018 | 2.50 billion |
| 2019 | 2.70 billion |
| 2020 | 2.85 billion |
| 2021 | 2.91 billion |
As the table shows, Facebook saw rapid growth in monthly active users for the first decade after launch. However, user growth has slowed in recent years as Facebook has saturated much of the global market.
In the US and Canada, Facebook actually saw a small decline in daily active users (DAUs) starting in Q4 2021. This slight erosion in Facebook’s core market could be a troubling sign if the trend continues. On the other hand, Facebook still sees potential for further growth in developing markets like India, Indonesia, and Africa.
If Facebook can reignite meaningful user growth, especially amongst younger demographics, it could drive increased advertising revenue and a higher stock valuation. Stagnating or declining user growth would likely have the opposite effect.
US/Canada DAU Trend
| Quarter | DAUs (millions) |
|---|---|
| Q1 2021 | 195 |
| Q2 2021 | 195 |
| Q3 2021 | 196 |
| Q4 2021 | 194 |
| Q1 2022 | 193 |
| Q2 2022 | 192 |
Facebook’s Advertising Revenue
The vast majority of Facebook’s revenue comes from advertising. In 2021, $115.7 billion of Facebook’s $117.9 billion in total revenue was ad revenue. With over 2.9 billion monthly users globally, Facebook offers unique reach for advertisers.
Factors that could impact Facebook’s future advertising revenue include:
– **User engagement** – More active and engaged users are more valuable to advertisers. If daily user habits shift (e.g. less News Feed scrolling), it could reduce ad revenue.
– **Ad pricing** – The average price per ad on Facebook has fallen over time as mobile ads and automatic bidding have grown. Further ad price erosion could pressure revenue growth.
– **Ad load** – Facebook has been careful not to oversaturate users with too many ads. Increasing ad load risks turning off users but provides revenue upside.
– **Ad targeting** – Facebook’s highly targeted ads based on tracked user data have been very effective. Regulation around privacy and tracking could impact targeting and performance.
– **Macroeconomy** – Advertiser spending tends to fluctuate with the overall economy. A recession could cause brands to pull back ad budgets, hurting Facebook revenue.
If user growth stalls and Facebook struggles to maintain or increase advertising revenue, it would likely translate to slower revenue growth and a lower stock valuation.
Facebook Annual Ad Revenue
| Year | Ad Revenue |
|---|---|
| 2017 | $39.9 billion |
| 2018 | $55.0 billion |
| 2019 | $69.7 billion |
| 2020 | $84.2 billion |
| 2021 | $115.7 billion |
Competition
Facebook faces increasing competition from other platforms like TikTok, Snapchat, Twitter, YouTube and others vying for user attention and advertising dollars.
TikTok in particular has seen explosive growth recently and competes directly with Facebook’s apps like Instagram and Reels for younger users. If Facebook continues losing younger users to competing platforms, it could significantly impact long-term revenue growth.
Facebook is also facing new competition from companies like Apple and Google which are prioritizing user privacy over targeted advertising. For example, Apple’s iOS privacy changes have already disrupted Facebook’s ad targeting and measurement capabilities on iPhones.
Rising competitive threats could potentially take away market share from Facebook, lower its pricing power, and leave the company with fewer revenue growth avenues – all of which could hurt its stock price. However, Facebook is also investing heavily in new technologies like the metaverse which could open up entirely new revenue streams if successful.
Global Downloads of Major Social Apps (Q2 2022)
| App | Downloads |
|---|---|
| TikTok | 639 million |
| 400 million | |
| 277 million | |
| Snapchat | 277 million |
| 171 million | |
| 114 million |
Regulation
Facebook has faced growing scrutiny from regulators and lawmakers around issues like antitrust, privacy, data use, election interference, and more. Major regulatory changes could significantly impact Facebook’s business model.
In the US, the FTC recently filed an updated antitrust lawsuit seeking to split up Facebook’s business. Though still an uncertain outcome, if Facebook were forced to divest major assets like WhatsApp or Instagram, it would likely hurt the company’s market power and financial performance.
Facebook is also contending with new data privacy regulations like Europe’s GDPR and California’s CCPA which restrict how user data can be collected and leveraged for advertising. Tighter limits on data use and tracking could reduce Facebook’s ad targeting capabilities. Proposed laws like the Social Media Privacy and Consumer Rights Act would impose even more aggressive restrictions around ad targeting and algorithmic amplification in the US.
While Facebook is investing heavily to shape regulatory outcomes in its favor, major new policies limiting data collection or requiring interoperability between platforms could disrupt Facebook’s business model and growth prospects. As regulatory risk increases, it could dampen investor sentiment around Facebook’s future potential.
Key Regulatory Threats Facing Facebook
| Regulation | Potential Impact |
|---|---|
| Antitrust breakup | Loss of key business assets |
| GDPR, CCPA | Limits on ad targeting |
| Algorithmic accountability | Loss of News Feed control |
| Section 230 reform | Increased liability for content |
| Interoperability mandates | Reduced switching costs |
Other Challenges
Beyond the major factors discussed above, Facebook faces other challenges that could create uncertainty for investors and depress the stock price:
– **Slowing revenue growth** – Facebook has warned that revenue growth will continue decelerating as its business matures. Slower top-line growth typically warrants a lower valuation multiple.
– **Cost pressures** – Facebook plans to continue making major investments in areas like artificial intelligence, AR/VR, and its computing infrastructure. Rising costs could hurt profitability.
– **Public perception** – Controversies around teen mental health, hate speech, and more have significantly damaged Facebook’s reputation. This could make recruiting more difficult.
– **Shareholder pressure** – Large shareholders have put pressure on Facebook to reform and address societal harms. This could constrain Facebook’s strategic flexibility.
– **Founder succession** – Mark Zuckerberg has huge influence given his majority voting control. If he were to step back in the CEO role, it could create uncertainty around Facebook’s future direction.
These and other challenges present potential headwinds for Facebook’s stock. However, the company also retains tremendous scale, cash flow, and talent that it can leverage to navigate these hurdles.
Analyst Price Targets for Facebook
Many Wall Street analysts remain broadly optimistic about Facebook’s outlook and future stock performance despite the risks and challenges facing the company.
Here is a sampling of recent analyst price targets for Facebook shares:
| Firm | Rating | Price Target |
|---|---|---|
| Morgan Stanley | Overweight | $280 |
| JP Morgan | Overweight | $275 |
| Wells Fargo | Overweight | $350 |
| Credit Suisse | Outperform | $336 |
| Barclays | Overweight | $275 |
| Mizuho | Buy | $350 |
As of October 12th, 2022, Facebook stock was trading around $130 per share, so these analyst price targets imply significant upside ranging from 50% to over 150%.
Key points supporting the bull case for Facebook include:
– Huge reach and engagement makes Facebook attractive for advertisers
– Valuation is relatively inexpensive at current prices
– Strong free cash flow generation funds growth initiatives
– Investments in AI, VR, and metaverse could pay off long-term
Conclusion
In summary, analysts see multiple opportunities for Facebook’s stock to appreciate substantially from current levels. However, there are also considerable risks around factors like stagnating user growth, competitive threats, regulation, reputation challenges, and execution uncertainties.
Facebook’s track record demonstrates an ability to innovate and reshape markets, even in the face of disruption. But whether Facebook can successfully adapt its business to evolving user behaviors, privacy norms, and regulatory constraints remains to be seen.
In the near term, Facebook stock may continue to see volatility given the macroeconomic headwinds facing digital advertising. But for investors with a higher risk tolerance and long-term outlook, Facebook remains one of the dominant global platforms of the internet age. If the company can effectively manage the transitions ahead, Facebook stock could still have upside from today’s prices.