Stock of the Week: Facebook

The power is consolidating, if you’re okay with that

Andrew Willis 8 February, 2021 | 4:28AM

 

 

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Andrew Willis: The Robinhood saga reminded us that as consumers, we need to know who the customers are. 

You have to be careful with things that are ‘free’ because you get what you pay for. In the case of Facebook, you pay with your information. So how much is that information worth?

A lot, it turns out. Online advertisers are highly dependent on customer targeting –especially the new wave of home-based e-commerce businesses, with their more niche products. While they may be small accounts, they make up an army of ad spenders – contributing to fourth-quarter revenues of 28 billion U.S. dollars.

This has us raising our fair value estimate for the company, bringing the FAANG stock into four-star history. Senior Equity Analyst Ali Mogharabi says that advertising sales were up 25% - all while charging prices 5% higher, demonstrating the strength of the company’s economic moat, or competitive advantage.

The source of Facebook’s moat, however, brings us back to the price of ‘free’ services – and what your data’s worth. Apple’s decided to pass on such personalized ad tracking, requiring users to specifically opt-in for targeted ads – which means lost income opportunities for Apple – BUT, it strategically leaves Facebook at the centre of a big ESG spotlight on privacy concerns….Facebook didn’t take this well because while lucrative, it knows free services with strings attached have been getting a bad rap lately – and investors should know how much that will cost.

For Morningstar, I’m Andrew Willis.

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About Author

Andrew Willis

Andrew Willis  is Content Editor for Morningstar.ca. Follow him on Twitter @AndrewWillisCDN.

 

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