Stock Insight

Facebook's Legal Battles Could Provide Upside

Despite the Federal Trade Commission and 47 states filing separate antitrust suits, we are maintaining our FVE

Ali Mogharabi 10 December, 2020 | 12:26PM

The Federal Trade Commission and 47 states have filed separate antitrust suits against Facebook. The FTC claims Facebook has illegally attained market power through the acquisitions of Instagram and WhatsApp and is requesting that the courts order Facebook to spin off those businesses. The FTC also wants to restrain Facebook from making acquisitions in the future. We expect the courts to side with the FTC regarding limitations on future acquisitions, but we think the likelihood of a forced breakup is low. In addition, competition for Facebook continues to emerge. Even if Facebook is forced to spin off Instagram and WhatsApp, its shareholders may ultimately benefit; we estimate that the three companies could fetch more than our US$306 fair value estimate for Facebook if valued separately.

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Ali Mogharabi Ali Mogharabi is a senior equity analyst for Morningstar.

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The Morningstar Star Rating for Stocks is assigned based on an analyst's estimate of a stocks fair value. It is projection/opinion and not a statement of fact. Morningstar assigns star ratings based on an analyst’s estimate of a stock's fair value. Four components drive the Star Rating: (1) our assessment of the firm’s economic moat, (2) our estimate of the stock’s fair value, (3) our uncertainty around that fair value estimate and (4) the current market price. This process culminates in a single-point star rating that is updated daily. A 5-star represents a belief that the stock is a good value at its current price; a 1-star stock isn't. If our base-case assumptions are true the market price will converge on our fair value estimate over time, generally within three years. Investments in securities are subject to market and other risks. Past performance of a security may or may not be sustained in future and is no indication of future performance. For detail information about the Morningstar Star Rating for Stocks, please visit here

Quantitative Fair Value Estimate represents Morningstar’s estimate of the per share dollar amount that a company’s equity is worth today. The Quantitative Fair Value Estimate is based on a statistical model derived from the Fair Value Estimate Morningstar’s equity analysts assign to companies which includes a financial forecast of the company. The Quantitative Fair Value Estimate is calculated daily. It is a projection/opinion and not a statement of fact. Investments in securities are subject to market and other risks. Past performance of a security may or may not be sustained in future and is no indication of future performance. For detail information about the Quantiative Fair Value Estimate, please visit here