Stock of the Week: Facebook

It’s carrying the communications sector – but here comes TikTok

Andrew Willis 2 November, 2020 | 4:38AM

 

 

Andrew Willis: Facebook (FB) accounts for 20% of the Morningstar US Communication Services Index. And, it was the biggest positive contributor to the sector for the third quarter, gaining 10% even in the face of headlines around potential antitrust actions. These threats from regulators aren’t going away, especially with all of the attention Facebook’s been getting around the US Presidential election.

And we haven’t even gotten to competition from Tik Tok. Does too much attention and competition risk derailing the good times for Facebook, and potentially a big piece of the entire U.S. communications sector?

Morningstar’s director of research for communications services, Michael Hodel, says that competition in this space is a double-edged sword. Tik Tok is so huge, that the sheer presence of another giant could at least dilute the pressure from regulators and help quell any antitrust concerns. Plus, when it comes to losing market share to Tik Tok, Facebook isn’t standing still.

It has already responded by making ‘Reels’ - a similar 15-second video clip service as Tik Tok’s – available on Instagram. For now, we believe that Facebook’s wide moat is firmly intact and that the current stock price is in line with our fair value estimates.

Facebook is big and vulnerable, but it’s also active and adaptive. As the social media space continues to evolve, its ability to integrate with competitors will serve it well – until it drives antitrust concerns to a tipping point.

For Morningstar, I’m Andrew Willis.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Facebook Inc A280.57 USD-0.46

About Author

Andrew Willis

Andrew Willis  is Content Editor for Morningstar.ca

 

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