In a flurry of bad news coming out about the company Facebook (FB) has announced a name change to Meta. For this article we’ll use the name Facebook, at least until they fully rebrand.
Thanks to earnings, and an ad spending warning from Snap, Facebook shares slipped from about $342 to $312. Plus, if you pull up a two-year chart of Facebook, and overlay relative strength (RSI), MACD, and Williams’ %R, you can see the social media giant’s pullback is wildly overdone.
- RSI is at its 30-line,oversold
- MACD is aggressively oversold below its mean
- Williams’ %R is below its 80-line, oversold
In addition, if you overlay Bollinger Bands (2,20 or two standard deviations above and below its 20-day moving average), you can see that Facebook’s stock is now below the lower band, oversold.
There’s a good deal of negativity surrounding Facebook
For one, its competitor, Snap (SNAP) warned that the Apple (AAPL) iPhone’s new privacy settings impacted its “advertising business more than anticipated,” as noted by CNBC. The company also warned that global supply chain issues and labor shortages have reduced the “short-term appetite to generate additional customer demand through advertising.”
Two, Facebook revenue growth just wasn’t up to par. In its most recent quarter, Facebook revenues came in at $29.01 billion, which fell short of estimate for $29.45 billion. Fortunately, the company did beat on earnings, with EPS of $3.22, which beat expectations for $3.17. Monthly active user accounts also jumped to 3.58 billion, which was also better than expectations for a print of 3.51 billion.
So, there are silver linings there.
Negativity May Already Be Priced Into the Stock
In addition, a good deal of that bad news has been priced into the stock, we believe.
We also believe the stock could swing higher on a few pieces of good news. One, Facebook just announced it would add $50 billion to its buyback program.
Two, unlike Snap, Facebook was prepared for the risks that Apple’s latest moves posed. In fact, according to Mark Mahaney, head of Internet research at Evercore ISI, in an interview with CNBC: “Facebook management told people about [Apple’s] IDFA [Identifier for Advertisers]…they’ve been talking about it for a year, and then the stock got slapped down because of that.”
Three, analysts, like MKM Partners’ Rohit Kulharni appear far more bullish. “When you look beyond the Apple headwinds into 2022, Facebook is going to give you more disclosure, going to buy back more shares, and obviously they are going to disclose that the core business is generating a lot of cash,” he said, as noted by Yahoo Finance.
For now, it may be best to ignore the short-term noise, and instead, focus on the long-term, oversold opportunity.