Facebook, Inc. (NASDAQ: FB): RiverPark’s Comments On Near-Term, Long-Term Future

RiverPark is bullish on Facebook, Inc. (NASDAQ:FB). In its Q1 Investor Letter, the fund discussed its investment thesis on the social networking giant as well as on other companies including Amazon. In this article, we’re going to take a look at RiverPark’s thoughts on Facebook.

So, here is what RiverPark said about the social media giant:

While it is our belief that the portfolio remains in excellent position to continue to generate strong absolute and relative returns, it would be hard to argue that the near-term return potential for Facebook, and to a lesser extent Alphabet, is not a bit worse than we had previously expected.

In the case of Facebook, regardless of one’s perspective on who, if anyone, was a wrongdoer in that case (from our perspective, we do not believe there was any nefarious behavior on the part of Facebook and the data and revenue involved were negligible in the context of Facebook’s vast user base and business model), the media and investor attention to the situation has cast a pall over the business model of selling targeted advertising on the internet as well as some negative backlash amongst users that are concerned about their privacy. In addition to a potential disruption in near-term user metric reports (which could further pressure the company’s shares), we believe Facebook will (correctly) substantially increase their expense load to respond to government inquiries, rebuild user trust and evolve their ad sales practices and targeting methodologies to better protect personal user information.

While we believe that each of these initiatives can and should position Facebook with an even wider competitive moat and the potential for an even more effective advertising platform for the long term, we do expect the next few quarters to be characterized by slightly worse user engagement figures, slightly less robust revenue growth and possibly substantially increased costs. For Facebook, these headwinds are offset by a business model that remains among the most impressive in our portfolio (Facebook recently reported 47% revenue growth and 82% EPS growth for the fourth quarter), nascent opportunities that can provide substantial additional future growth (Instagram, Messenger and WhatsApp), and a valuation (15x forward earnings) that we find extremely attractive. While we believe the risk/reward for Facebook is still dramatically skewed to the upside, we believe it may take several quarters for the positive longer-term impact from these issues to be recognized.

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Facebook, Inc. (NASDAQ: FB) is the most popular stock among hedge funds tracked by Insider Monkey. As of the end of 2017, there were 164 funds in our database with positions in the company including Fox Point Capital Management, Cryder Capital, and Asturias Capital. During the first quarter of 2018, Immersion Capital, Taconic Capital, and Springhouse Capital Management opened new positions in Facebook, according to Insider Monkey’s database.

Shares of Facebook are up nearly 7% this year. Over the past three months, FB gained nearly 10%, while the share price has jumped more than 26% over the past 12 months. On Friday, the stock was closed at $193.99. FB has the consensus average recommendation of ‘Buy’ and the consensus average target price of $221.32 among analysts polled by FactSet.

Meanwhile, you’ll love to read RiverPark’s analysis on Alliance Data Systems, Dollar Tree, Adidas AG, MasterCard, Booking Holdings, and Adobe Systems.