With Facebook Falling out of Favor, Will Instagram be Enough to Rescue Shareholders?


Facebook is falling out of favor. Will Instagram be enough to save the company’s share price — and investors? | Source: Shutterstock

By CCN.com: According to Fortune’s latest edition of the world’s most respected companies, admiration for Facebook is plummeting. The souring sentiment is following — and followed by — Facebook’s falling share price in what is rapidly becoming a vicious cycle.

Facebook No Longer Admired by Top Executives

The latest “World’s Most Admired Companies” list from Fortune now puts Facebook in 44th place, down from the 12th position last year.

Fortune’s corporate reputation survey polls executives from America’s largest companies by revenue. Its survey partner, Korn Ferry, asks the leaders, directors, and analysts to rate enterprises within their own industries on nine criteria. The criteria range from opinions on investment value to management and social responsibility. Nearly 4,000 survey participants then select their top ten companies in order to produce Fortune’s 50 All-Stars.

This year, Apple takes the top spot, followed by Amazon in 2nd, Berkshire Hathaway in 3rd, and Disney in 4th place.

At 44th, Facebook barely made the list.

Reputation and Investor Behaviour Correlate

Facebook’s share price fell over 25% in 2018, the first poor performance for Facebook since its IPO in 2012. The social media giant and its CEO Mark Zuckerberg have been hit by controversy after controversy, beginning with the Cambridge Analytica fiasco and continuing with further data breaches and news of privacy violations.

Facebook Share Price Over the Last Five Years | Source: TradingView

But Facebook Users Don’t Seem to Care

Facebook has a near-monopoly on our primary social media behavior Despite concerns about how the company monitors activity and utilises user data, its patronage shows no major sign of decline.

Number of Monthly Active Facebook Users Worldwide | Source: Statista

Facebook hit two billion users in 2017. The closest comparative social platforms are Instagram with one billion users and Twitter with 335 million users.

Social Media Users by Network October 2018 | Source: Statista

Facebook Shares are Primed for a Crash

Analysts are still recommending Facebook stock, with 34 out of 48 giving Facebook’s shares a buy rating. Analyst consensus on future sales revenue put the figure at $14.8 billion for the first quarter of 2019, falling back from an estimate of $16.4 billion for the third-quarter of 2018.

Facebook Earnings and Sales Forecasts | Source: CNN

In July 2018, Facebook warned shareholders that future years’ revenue would fall as it focused on user privacy and security instead of profits.

Facebook’s profits are also likely to be hit — albeit in a very minor way — by what’s expected to be a record-setting fine from the US Federal Trade Commission. The fine is a result of the FTC’s investigation into the Cambridge Analytica scandal.

Pivotal Research Group recently predicted that Facebook’s share price could fall by a further 18% in 2019, with senior analyst Brian Wieser saying:

The list of problems the company is grappling with is vast, including complicity in genocide, enabling social and political instability in different countries around the world, the unwitting sharing of consumer data and antagonized legislators in the US, the UK, Europe and beyond.

Why Instagram Could Save Facebook in 2019

instagram facebook share price
Is Instagram Facebook’s guardian angel? | Source: Shutterstock

Revenue from Instagram, as well as WhatsApp, could save some of Facebook’s performance as its core business declines. Jefferies analysts predict Instagram will generate $14 billion in revenue this year.

We believe that Instagram is a material driver for growth in ’19 and can grow 60%+ supporting core FB which could decelerate below 20%+ growth for the first time.

Jefferies also noted that users and advertisers aren’t leaving Facebook “in droves,” boosting its outlook for the shares which it gives a “buy” rating and a $180 price target per share.

Featured Image from Shutterstock. Price Charts from TradingView.


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