The novel coronavirus has been a roller coaster ride for social media giant Facebook (NASDAQ:FB). FB stock lost 33 percent of its value during the stock market’s initial drop. But even after a month-long rally, the firm has lost nearly a fifth of its pre-coronavirus value.
Like the rest of U.S. companies, Facebook will feel some pain as coronavirus weighs on the economy. But the social media giant is well-positioned to benefit from an influx of people confined to their homes.
So of all the stocks to pick up at a discount right now, Facebook is one of the best choices.
FB Stock Can Weather the Storm
Facebook was in a rock-solid financial position heading into this storm, so that makes it likely to be a winner once the dust settles. Most importantly, the firm has zero long-term debt. That means the company has more freedom to invest in growth than most of its debt-laden peers. Plus, Facebook is also sitting on a pretty hefty cash coffer. At the end of the fourth quarter, the firm had saved up $54.8 billion worth of cash and short-term investments.
That’s valuable going into an economic downturn because it gives the firm power not only to invest in its own growth, but also to acquire struggling competitors the might enhance its business.
Case-in-point: Facebook announced that it had taken up a 9.99% stake in Jio Platforms for $5.7 billion. Jio is home to a 388 million user network, and owns a number of streaming, shopping and news apps under its umbrella. The deal will allow Facebook’s WhatsApp messenger service to partner with Jio, representing a huge step forward for the company’s Indian expansion.
Moreover, the Jio tie-up will also allow Facebook more room to build out WhatsApp’s potential. There has been a lot of buzz around precisely how Mark Zuckerberg plans to leverage the hugely popular messaging service, and this partnership could be the first real insight into his plans.
In a note on Wednesday, Bernstein analysts pointed out that this will allow Facebook to turn WhatsApp into “something akin to WeChat,” a very popular messaging app in China.
The transaction fits with their recent push to build themselves and experiment more. The partnership also provides a closed network of 388 million users to develop and test a WeChat-like app.
WeChat is primarily a messaging service, but it has morphed into something much more significant. People use it to make payments, play games and even manage their bank accounts. It’s almost like a completely separate operating system.
Therefore, if Facebook can build WhatsApp into that kind of ecosystem in India, it would not only offer a unique monetization strategy, but it could create a blueprint for a similar service in other parts of the world like Europe and the U.S.
The Social Media Era
In the near-term, Facebook looks exceptionally well-positioned to benefit from the global coronavirus lockdowns. When the firm reports earnings later this month, most are expecting to see a marked rise in new active users as people look for ways to connect from inside their homes.
It’s up for debate whether or not people will continue to use social media as heavily once lockdowns are lifted. But for now, that will likely help Facebook weather some of the pain caused by a drop in advertising spend.
Plus, Facebook doesn’t have as much exposure to travel-related advertising as some of its peers like Alphabet (NASDAQ:GOOGL) do. That said, the company looks likely to fare relatively well.
The Bottom Line on FB Stock
Collectively, Facebook is perfectly positioned to be successful during an economic downturn. And the firm’s Jio investment proves management is looking to make powerful strategic moves. That’s going to be a boon for investors who are willing to wait out some turbulence over the next few months.
If this earnings season has taught us anything so far, it’s that most U.S. companies have no idea what the future holds. No one is immune to that kind of uncertainty — not even Facebook. With that in mind, it’s probably not wise to jump into any stock with both feet just yet. However, starting to build a position in FB stock now will almost certainly pay off in the long-run.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.