Is Facebook Undervalued Today?

Say what you will about the issues that users have with it, it's an excellent platform for advertisers.

Motley Fool Staff
Motley Fool Staff
Feb 26, 2019 at 1:17PM
Technology and Telecom

The FAANG stocks are among the most widely held equities -- people like to invest in what they know, and they sure know Facebook (NASDAQ:FB), Amazon, Apple, Netflix, and Google parent Alphabet. But they don't always love them, and lately, Facebook has struggled due to a number of scandals that have cost it some trust and affection. As a result, its stock is trading significantly below last summer's highs, even after its rebound so far in 2019. But is the social media giant undervalued at this point?

Check out the latest Facebook earnings call transcript.

In this segment from MarketFoolery, host Chris Hill and analyst Emily Flippen address a listener's question on that topic, and try to gauge the business, and where the stock would be if the market were a bit more dispassionate in its valuation.

A full transcript follows the video.

This video was recorded on Feb. 21, 2019.

Chris Hill: Question from Ben Miller in Lawrence, Kansas. He writes, "I listen every day. Great show!" Thank you, Ben! "I own nine stocks with a heavy position in Facebook. It's at $162 a share right now. Do you think it is significantly undervalued like I do?" Great question! If Ben thinks it's undervalued at $162, then he definitely thinks it's undervalued today at $160, down a little bit from when he sent his email.

Let's put the business aside for a second. When you just look at Facebook the stock, do you think it's undervalued?

Emily Flippen: I don't think I'd go as far as to say significantly undervalued. I would say that the pullback we're seeing, I think, makes it an attractive buy at this time.

Hill: Are you a Facebook shareholder?

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Flippen: I am actually not a Facebook shareholder, but I am a last remaining vestige of a Facebook user. Once my parents moved onto the platform, I realized that, at least around my social circles, it was dead. They post occasionally and say, "Post on Facebook those photos from your vacation so your grandma can see," and I do. It's a sticky platform for the users that still exist on it. I think that's probably why it's so undervalued right now. If you're an advertiser, Facebook users are very sticky, the international growth is still strong even though it's lagged down here in the U.S. But the idea that, if you're trying to advertise, you really have no other option at the moment other than to go to one of Facebook's many platforms says a lot about the company.

I have concerns. We all have concerns about the privacy, the regulatory environment, even the culture coming out from the management team. But I think when push comes to shove, Facebook is in a position where it's extremely strong for what's really driving both its top and bottom lines. From an investing perspective, that's probably the most important issue.

Hill: You touched on something that I think is really important when thinking about Facebook's business. It's the way in which Facebook serves advertisers. I have a little bit of understanding about this simply from talking to the marketing folks here at The Motley Fool. Facebook, beyond the fact that they have this massive platform with all these people on it, they do a great job reaching out to advertisers, serving advertisers, making it very easy to use their platform. So, in the same way that we talk about a payment platform like Venmo and how easy it is to use Venmo -- so easy that someone who's not great with technology like me can very easily use Venmo -- Facebook makes it really easy for advertisers to use their platform, and that should never be discounted.

Flippen: And it's effective advertising, which is arguably even more important than the price. You can put ineffective ads wherever you want over the internet, but if the banners become background noise to the users, it provides no value to you. Facebook advertising has been proven to be continuously effective in driving clicks and driving people to those advertisers' websites. That to me tells you everything you need to know about Facebook at this time.