- Libra’s potential success has already been priced in and it looks like the crypto will be a big letdown for the bulls.
- Regulatory fears will start weighing heavier on the company. Antitrust agencies are already planning a tech probe of the Silicon Valley and a meaningful punishment is imminent.
- Broader markets’ rally benefited Facebook but revenue growth is weakening.
After a great 2019, Facebook (NASDAQ:FB) bulls are expecting the stock to continue soaring. Some analysts covering the stock think it can rise to $300 levels in the coming years thanks to its much-awaited cryptocurrency Libra. The Mark Zuckerberg-led company had a great run in 2019, with the stock rising 56.6%, nearly doubling the rise of the S&P index. And Wall Street expects the rally to continue.
Wall Street analysts almost unanimously expect the stock to build on its 2019 run. 29 of the 33 analysts covering Facebook have a buy rating on the stock.
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Being a contrarian often pays when there’s extreme fear or greed in the markets. With so much bullishness around the stock, betting on Facebook to continue moving doesn’t make sense from a risk-to-reward perspective. As a result, the air will likely blow out of the Facebook-bubble in 2020.
Priced in Libra Hype Will be a Bulls’ Letdown
Many companies have witnessed staggering gains because of the cryptocurrency hype. Eastman Kodak went nuts in 2018 when it tripled in value solely because of the cryptocurrency hype. Unfortunately, it didn’t work out, and it witnessed a massive correction when the hype train got derailed.
When it comes to Libra, the hype gained momentum in 2019, when Mark Zuckerberg announced that it would be bringing the first version of the cryptocurrency in 2020. The stock climbed despite growing scrutiny from regulators.
Regulators have had understandable concerns trusting Facebook with personal data. When it comes to money, their doubts are going to grow tenfold. For this exact reason, pivotal companies like PayPal, Visa, Mastercard and eBay pulled out of the Libra cryptocurrency project. Swiss Finance Minister and President Ueli Maurer even said that the Libra project has failed before the launch.
Since Facebook is priced for perfection, markets will not take the potential news of Libra being cancelled or delayed positively, and the stock will likely take a big hit.
Antitrust Agencies have Sights set on Mark Zuckerberg
Last year, Facebook was fined $5 billion for selling private data to Cambridge Analytica. Since Facebook is a cash-rich company, the relatively small fine was perceived as a win by the markets. However, things can drastically change in 2020. With the US elections right around the corner, Facebook will attract even more scrutiny from regulators.
Some have already expressed concerns about the company’s dominance in the online ad market. A major tech probe on the Silicon Valley looms large and this time the regulators will look to impose a stricter punishment.
Facebook has fed off the Broader Markets Rally
The stock market had an excellent 2019 thanks to the incessant tweeting about trade deal by President Trump and stealth quantitative easing by the Federal Reserve. The broader markets rally pushed Facebook to new highs despite the company reporting a decline in revenue growth since Q4 in 2018.
The rising stock price despite slowing growth rate suggests that the rally has been driven by sentiments and has little to do with fundamentals. Given the threats surrounding Facebook’s latest cryptocurrency project and growing regulatory concerns, the sentiments can shift drastically. Amid all the bullishness around the stock, a sentiment shift can lead to a massive correction in 2020.
Last modified: September 23, 2020 1:30 PM