This Stock’s Pullback is a Buying Opportunity

Just a few weeks ago, social media stocks were experiencing a moment in the sun as the novel coronavirus bolstered the case for online connectivity. Facebook’s (NASDAQ:FB) FB stock was one such beneficiary, rising to all-time highs in mid-May.

But a lot can change in a week, and change it did. First, President Donald Trump took aim at both Facebook and Twitter (NYSE:TWTR) after some of his tweets were flagged with fact-check warnings.

Facebook later suffered another blow when the President sent out a controversial message regarding the Black Lives Matter protests, which the firm refused to take down.

Now, FB stock’s fate becomes far more uncertain as the company navigates through difficult decisions regarding content monitoring. That’s had an impact on the company’s share price. FB stock had fallen roughly 3% from its May 22 highs as investors fretted over what the controversy would do to the platform.

This isn’t the first time Facebook has come under fire regarding its operations and it likely won’t be the last. If anything, the pullback represents a good buying opportunity for investors with a long-term timeline.

FB Stock Will Get Through This

This week the firm was plagued by news that employees were staging a ‘virtual walkout’ over leadership’s decision to leave Trump’s controversial comments untouched, while competitor Twitter flagged them for glorifying violence. The move angered many at a time when the country has become deeply divided, but so far Facebook is sticking with its decision not to censor the remarks.

Whether you agree with Mark Zuckerberg’s decision or not doesn’t matter from an investment standpoint. That’s because the public’s memory is short and Facebook has become an integral part of many people’s lives — from Instagram to WhatsApp, to Facebook’s business listings and events calendar. Those who are deleting their account over the issue will likely return to the platform in a few months because of how ingrained it’s become in day-to-day life.

Remember the public’s outrage when people found out about Facebook’s data leak to Cambridge Analytica? That was just two years ago, but the firm is still clocking in more daily active users than ever. Facebook has suffered in the court of public opinion before, but the platform has remained resilient.

Growth Prospects

For now, the conflict over Trump’s tone is overshadowing FB stock’s potential future growth, something investors can use to their advantage. Facebook is currently working to build out a Shops platform that would allow the company to compete with the likes of Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOGL,NASDAQ:GOOG) in a meaningful way.

Connecting social media and retail is a natural step, especially considering how many Instagram users have become ‘influencers’ with huge followings eager to take their product recommendations. Then there’s the huge presence of small and medium-sized businesses that communicate with potential customers via their Facebook page. Shops bridges the gap between discovering a product and actually buying it. That could be a huge game-changer if it’s successful.

So far, Shops has had a positive reception among analysts, with many upping their price targets and ratings. Not only will Shops earn Facebook a 5% commission for sales through the platform, but it should also significantly increase ad spend among retailers using Shops. Being able to offer shoppers a seamless experience in which they discover, research, and buy a product all in one place means ads are more likely to translate into sales.

Citi’s Jason Bazinet believes Facebook has the potential to serve about 2% of the e-commerce market around the world over the next three years. He believes that would be a $7 billion windfall for the firm. He said:

The firm should benefit from: a) the continued growth in e-commerce and b) the growing propensity of consumers to shop within social media apps.

The Bottom Line

The initial announcement saw FB shoot higher, but as the controversy over how Facebook treats questionable content rages, the firm’s share price is taking a beating. With that in mind, investors might want to use any further weakness as a buying opportunity. Once the company has cleared this hurdle, its growth potential looks promising.

— Matt McCall

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Source: Investor Place