Please ensure Javascript is enabled for purposes of website accessibility

3 Reasons to Buy Facebook Stock in the Wake of Coronavirus

By Adam Levy - Mar 12, 2020 at 12:10PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Facebook's business should hold up well and emerge stronger from the overall market downturn now underway.

The spread of COVID-19 (a disease caused by a novel coronavirus) has wreaked havoc on the financial markets, and seemingly no company is immune to the fallout. As the markets get pummeled, though, smart investors will look for buying opportunities.

Facebook (META -0.44%) is near the top of my list of stocks to buy as share prices continue to go down. While it might not be immune to the problems caused by the coronavirus pandemic, it has several characteristics that make it a strong buy in the current market environment.

A sign with Facebook's address and the "like" symbol

Image source: Facebook.

Staying connected during a quarantine

Every day, more and more workers are being told to stay home and get their work done remotely. Consumers are canceling travel plans. Going out to hang out with friends in a crowded bar or restaurant may even be something to avoid in higher-risk areas. All because of concerns about spreading the virus.

As a result, Facebook could see increased engagement across its apps. First of all, Facebook's suite of apps offers the best way for people to stay in touch with their friends and family when they're stuck at home. It has 2.9 billion monthly active users across Facebook, Instagram, WhatsApp, and Messenger. If there's someone you want to connect with, you can probably find them on at least one of Facebook's apps.

Secondly, Facebook is a major source of news for a large portion of the population. About 15% of Americans say their preferred source of news is social media, and Facebook is by far the most popular among them. As more consumers come to Facebook to check on the spread of the virus and to make sure their friends are safe, engagement on the platform will get a nice boost.

Facebook's advertising mix favors the current environment

Facebook has over 8 million businesses advertising on its platform. The sheer breadth of active advertisers makes Facebook's revenue more durable than that of smaller competitors.

However, Facebook will also see benefits from less exposure to categories such as travel and more exposure to categories such as e-commerce or gaming. 

Competitors such as Alphabet's (GOOG -0.46%) (GOOGL -0.70%) Google have considerably more exposure to the travel industry, which typically pays premiums for advertisements. Travel-related searches are some of the search leader's most valuable searches. As search volume for travel goes down, and prices for flights and hotels get less expensive, the amount of travel-related ad spend will decline.

Meanwhile, Facebook's continuing to increase its efforts in e-commerce, particularly on Instagram. Not only is the shift to e-commerce a secular trend, but consumers are currently conscious of staying home to order things online instead of going to stores. That could result in more competition for e-commerce ads on Facebook's platforms.

Long-term growth from a secular trend

The long-term thesis on Facebook is that ad spending will continue to shift from legacy media such as television and print to digital. 

Facebook may actually benefit long term from an economic downturn, says Atlantic Equities analyst James Cordwell. While revenue growth would certainly slow for Facebook if coronavirus and other market forces cause a recession, it wouldn't be hurt as badly as other companies relying on print or television advertising. That's because marketers would be forced to focus their budgets on areas that produce the best return on ad spend, and that's often digital advertising -- specifically ads on tech giants with hoards of data such as Facebook or Google.

That would position Facebook to rebound quickly from a recession by accelerating the shift in ad spending. As ad spending ramps back up, a larger portion would find its way to Facebook than if the economy otherwise continued to chug along as it has for the past decade.

Overall, Facebook is well-positioned to both weather the fallout of the coronavirus's impact on the financial markets and emerge stronger than companies in other industries. That makes it worth your consideration as a stock to buy during the turmoil.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
META
$169.41 (-0.44%) $0.75
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$2,343.00 (-0.70%) $-16.50
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOG
$2,359.78 (-0.46%) $-10.98

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
336%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.