FB – Although management sentiment suggests the potential for near-term headwinds, market expectations are far too bearish, suggesting longer-term upside remains warranted

• Facebook, Inc. (FB:USA) currently trades above historical averages relative to UAFRS-based (Uniform) Earnings, with a 24.8x Uniform P/E. Even at these levels, markets are pricing in extremely bearish expectations for the firm, and while management concerns about privacy and safety investments, government regulation, and expenses suggest the potential for near-term headwinds, the firm’s leadership position in its space and lack of management concern about user adoption rates suggest longer-term upside remains warranted
• Specifically, management may be exaggerating their priority of developing a privacy-focused social platform, and may lack confidence in their ability to utilize AI to enhance platform safety. Moreover, they may be concerned about the impact and timing of privacy regulations in the EU and US, and may lack confidence in their ability to effectively manage innovation investment costs and capex. Finally, they may be downplaying concerns about ad revenue headwinds from their shift in Stories usage mix, and may be concerned about product changes and the decline in payment and other fee revenues
• That said, even with near-term headwinds suggested by management’s pessimism, long-term outperformance remains warranted at current valuations if FB is able to just maintain profitability at current levels.