Special Alert: Removing Facebook shares from the Select List
Special Trade Alert for Tematica Investing Subscribers:
- We are issuing a sell on Facebook (FB) shares and removing them from the Tematica Investing Select List. As we do this, we will note the 30% gain in the shares to be had since they were added to the Select List in November 2016
- We are placing Facebook shares on the Tematica Investing Contender List
As the privacy and user data issues continue to mushroom at Facebook, we see the risk-reward trade-off to be had in the shares as limited to the upside as the company looks to address the issues and win back users. Given Facebook’s reliance on advertising revenue — which is obviously predicated on users and the amount of time spent on the service — in the current environment, much like the one we are seeing with the stock market in general, I suspect advertisers will “shoot first, ask questions later” as the could likely curtail their ad spending with Facebook.
In the recent past, we have witnessed advertisers balk at digital platforms following breaches and privacy concerns, and I expect that is likely to happen with Facebook. In the short-term, the beneficiary of this pain point is likely the Google AdWords platform, a nice additional tailwind for Tematica Select List company Alphabet (GOOGL), whose shares are up over 40% since we added them. While we remain bearish on shares of Snap (SNAP), we recognize that in the near-term both SNAP and Twitter (TWTR) could see some lift in advertising revenues.
Odds are Facebook will look to forestall such advertising spend shifts by salvaging its reputation as it trots management out, owns up to the issues and says it will address the problems. Any fixes, however, will take time and as we are seeing in the headlines we are hearing about other breaches that in my view will only stoke the current privacy concerns.
Here’s the thing, as these thoughts and actions begin to permeate investor minds, we will probably see Wall Street begin to cut revenue and EPS forecasts for Facebook for 2018 from the current $55.1 billion and $7.35 per share, respectively.
What this all means is for Facebook shares is that the best case scenario sees the shares stay range bound in the near future. However, there is also the likely case that they will trade off becoming a “show me” story in the near-term. The former is the likely the case even though Facebook is looking to expand the stickiness of its namesake service with video and original content on its Watch tab, while at the same time pushing its other services — Whatsapp and Instagram — to offer more advertising opportunities.
One of the key tenants for investing is to not fall in love with your investments, and that has us cutting Facebook shares from the Select List, and placing them onto the Contender List. The why behind that move is while there is a short-term disruption underway in where and how companies will advertise, in the medium to longer-term advertisers will still want to reach consumer where they are. In keeping with our Connected Society investing theme, this means connected devices and other digital platforms they are using to consume content, no matter the form or substance.
- We are issuing a sell on Facebook (FB) shares and removing them from the Tematica Investing Select List.
- We are placing Facebook shares on the Tematica Investing Contender List
