Facebook (FB 8.49%) has gotten off to a rough start in 2021.
The social media stock is down 7% through Jan. 15 compared to a modest gain for the S&P 500, and the company is facing a slew of new challenges. WhatsApp users are reportedly fleeing the app for alternatives like Signal and Telegram after Facebook announced a new data-sharing policy, and the tech giant is feuding with fellow FAANG stock Apple over changes in iOS 14 that require Facebook to get permission from users to allow certain data-tracking tools.
Still, if you're thinking about selling Facebook right now, that move might be short-sighted. Below are three popular but misguided reasons to sell the stock.
Image source: Facebook.
1. The Trump ban
Investors didn't respond well to Facebook and Twitter's decision to boot the president off of their platforms. Twitter said it would permanently ban Trump, while Facebook said he would be suspended "indefinitely." After the decision came out, Facebook stock fell 4%, while Twitter gave up 6.4%.
Still, the risk to Facebook seems minimal. Trump only had 33 million followers on the platform, a small fraction of Facebook's total active user base of over 2 billion, and much of the reaction seemed to be a knee-jerk movement to a big headline, especially as conservatives decried the move. However, that headline risk seems to already be fading, and with Trump on his way out as president, his influence on Facebook will only be diminished.
Alternatively, the decision also pleased some Facebook users as CEO Mark Zuckerberg has been criticized repeatedly for not doing more to police dangerous content on the platform and for being too accommodating to the president.
Over the long term, the Trump ban is mostly noise, and his presence isn't why Facebook users spend time on the platform.
2. The regulatory risk
Perhaps the biggest weight on Facebook stock these days is the potential impact of ongoing antitrust investigations. In October, the House antitrust subcommittee accused Facebook, as well as Alphabet, Amazon, and Apple, of exercising monopolistic power in their respective sectors, and the CEOs of all four companies testified before Congress. Meanwhile, the Federal Trade Commission also sued Facebook on antitrust grounds in December.
But there's a reason all four of these stocks have done so well over the last decade. From an investor perspective, monopolies are great as they allow for high profit margins and block out competition. The risk in them is that regulators will catch on, but Facebook has already faced plenty of fines and restrictions such as $5 billion in fines from the FTC in 2019, and the GDPR protocol in Europe designed to enhance user privacy protections. Neither one of those had a significant impact on the stock.
While antitrust investigations may gain strength with Democrats now in control of the federal government, even a break-up of Facebook would likely do little to harm investors as some analysts believe Instagram may now be worth $200 billion as a standalone company.
3. Facebook is "bad for democracy"
This issue is the most controversial one facing the company, and if you have ethical reasons for not owning Facebook, that's a fine reason to take a pass on the tech stock as investors should feel comfortable supporting the businesses they're invested in.
At this point, it's almost become rote to say that Facebook is bad for democracy, at least in some circles. It's true that Facebook's platform facilitated "Russian hacking" of the 2016 election, or advertising by Russians to manipulate voters, and some of the planning for the Jan. 6 insurrection of the Capitol took place on Facebook as well, among other platforms. But such concerns have done relatively little to dissuade Facebook users or advertisers, though they have been problematic for the company's brand image.
In the wake of the George Floyd protests, activist groups organized the #StopHateforProfit boycott, calling on major corporations to stop advertising for the month of July. Many of the world's biggest brands like Disney, Coca-Cola, and Unilever embraced the call, and some even said they would extend their boycotts past July. However, Facebook still put up solid growth in the third quarter, even with that boycott and pandemic-related headwinds in advertising. Revenue in the quarter rose 22% to $21.2 billion, and earnings per share jumped 28% to $2.71. Both were company records.
While Facebook should do more to protect its platform from bad actors, that performance shows the growth of the business won't be easily obstructed as the company's platform and reach is unique for both users and advertisers.
Many of Facebook's risks already seem fully priced in. The stock trades at a discount to the S&P 500 and should enjoy tailwinds from the economic reopening that's expected later this year, and as it laps the impact of last year's lockdowns. While investors should keep an eye on the risks the company is facing, on balance there are more reasons to buy Facebook stock today than to sell.
