With Netflix (
NASDAQ: NFLX) shares popping 17% on Wednesday after stellar earnings sent them to
all time highs, Wall Street’s attention was once again turned back towards the FANG group of stocks who were so hot for much of last year.
Of that group, Facebook (NASDAQ: FB) has been among the laggards in recent months as shares have traded sideways in a range from $250 to $290. They still managed to lock in a 100% rally from March through the end of last year, but lacked the strong finish that the likes of Apple (NASDAQ: AAPL) and Google (NASDAQ: GOOGL) were able to offer investors. Indeed, these Silicon Valley giants have managed to keep the momentum going into a new year which they’ve started off on the right foot, with shares up 2% and 9% respectively.
Facebook on the other hand is trading about flat for 2021 so far, and down nearly 10% from the start of December. But shares have held a solid line of support and got a new bull into their corner this week.
Fresh Upgrade
On Tuesday, BMO upped their rating on the social media titan from Market Perform to Outperform, suggesting that the recent lacklustre spell might be coming to an end. Analyst Daniel Salmon sees headwinds disappearing after Apple's App Tracking Transparency prompt rollout included limitations on identifiers for advertisers. Back in August, Facebook had raised concerns that Apple’s this iOS update could cut their in-app ad related revenue in half.
In a note to clients Salmon added “from here, we expect vertical integration for eCommerce (Payments, Shops, Marketplace, etc.) and more server to server integrations for advertising (e.g. re-worked Conversions API) to help drive a narrative about Facebook having greater control over its revenue destiny ". While potential political headwinds remain in the form of antitrust concerns, these have been well priced into the current share price and remain more of a could-happen than a will-happen event.
Facebook investors will be happy with Salmon’s new $325 price target, which suggests upside of more than 20% from current prices. Were shares to hit that, it would also mean they’d not only broken out of the range they’ve been trading in but would be at fresh all time highs.
Stars Aligning
The upgrade has come at a good time, with Netflix’s jump today certainly lending weight to the buy argument. J.P. Morgan recently spoke about how “FANG fatigue” was setting in, with many investors using the COVID vaccine rollout to suss out overlooked, non-tech opportunities for the new year. But J.P. Morgan still thinks FANG stocks are attractive, and “believe all FANG names have normalized top line growth of 20%-plus, and Google and Facebook should accelerate in 2021 on a strong online ad market".
They reiterated their Overweight rating on Facebook shares, and pointed to drivers like ad acceleration, new product diversification, and margin expansion, which are all set to help make 2021 another banner year for Facebook. Because even though 2020 ended a little meekly, a 100% rally is nothing to be sniffed at, and their price-to-earnings ratio is still only 30.
Having tested the lower end of their range, the factors are now in place for a retest of last quarter’s highs. The NASDAQ reaching all time highs today will also help lift it too, as the bears argument grows weaker in the face of fresh demand for FANG names.
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