This report will be analysing Facebook’s stock for the week commencing 15th February 2021. This will be done using StockGeist, a platform that determines the sentiment towards a stock in real-time, by applying natural language processing to the latest news updates and social media posts. All times given are in GMT+0.

Company Overview

Facebook, Inc. (FB) is an American company known for its social networking platforms, founded in 2004 and headquartered in California, US. The company dominates social network popularity across the globe, with Facebook topping the rankings through its 2.74 billion monthly active users. Its other platforms WhatsApp (acquired in 2014), Facebook Messenger and Instagram (acquired in 2012) follow suit, ranking 3rd to 5th respectively. This enormous userbase facilitates Facebook’s advertising-based business model, generating 97.9% of its $85.9 billion revenue in 2020 from advertising. As a Big Tech company with a market capitalisation of $747 billion, Facebook is one of the biggest components of the S&P 100 and NASDAQ-100.

Historical Analysis: 2020 – Present

Source: StockGeist

Performance in 2020

Facebook stock opened in 2020 at $206.75 and continued its bullish trend from the end of 2019, increasing 27.1% from October 3rd to January 29th, where it closed at $223.23. This peak would not be reached again for four months with the bullish trend ending as markets were disappointed by the results of Q4 2019 – as seen by the large gap in the candle sticks between January 29th and January 30th as the stock dropped 7.5% during after-hours trading. The stock was able to recover, up until this time last year, when Facebook’s stock fell by 31.3% from 19th February to 17th March as the spread of COVID-19 rattles markets and the wider economy, as exampled by the rapid rise in job losses to set record high levels of unemployment claims in the US – Facebook’s largest region by revenue. With a global recession looming, fears were that demand for Facebook’s core advertising services would plummet; a factor that contributed to Facebook’s underperformance compared to other technology companies in the S&P 500 from February to April.

Facebook’s stock resurged with the markets on 24th March as investors anticipated a stimulus package, further solidified as the $2.2 trillion economic stimulus bill was signed into law by the end of that week. Despite the previous fears of reduced advertising revenue, Facebook actually experienced a strong revenue increase of 16.7% across the first three quarters of 2020. This is because the lockdowns caused a large increase in the number of active users across its social network platforms and advertising demand was supported by new or expanding businesses during the pandemic. This further drove Facebook’s stock increase of 118% from 18th March to its new all-time high on 26th August of $304.67; the strong recovery overshadowing the negative shocks to the stock, such as Verizon and other companies pulling adverts from Facebook following a misinformation and hate speech controversy, causing a one-day drop of 8.32% on 26th June.

Following this strong recovery, Facebook stock was caught up in a broader pullback from its high, with an overall drop of 11.1% across September. Notably this was much larger than the overall drop of 3.9% for the S&P 500, as the sell-off was concentrated towards Big Tech stocks. With some larger deviations such as the spike across 4th-5th November in anticipation of the US election results, Facebook stock fluctuates around $273 for the remainder of 2020; a level that is still 20% higher than pre-COVID-19 levels, despite the pullback in September. This rough fluctuation around a mean level contrasts to the upwards trends for the S&P 500 in these final months of the year, with Facebook increasingly underperforming other technology companies throughout December. This weakness can be attributed to the numerous lawsuits, such being sued by the US Department of Justice for alleged discrimination in hiring practices, or two antitrust lawsuits from the US Federal Trade Commission. This is accompanied by the increasing regulation for Big Tech companies, with Australia unveiling new laws to gain compensation from Facebook for news publishers (which will be explored in the following weekly analysis), in addition to data privacy laws tightening from the EU and further restrictions expected under Biden.

Performance in 2021

Facebook stock opened in 2021 at $274.78 – 32.9% higher than previous year. However, unlike the previous year, the stock dropped 10.6% to $245.65 on 14th Jan. The primary driver of this poor start is the storming of the US Capitol following Trump’s harmful use of social networks, which created uncertainty over platform usage, and thus revenues, for Facebook and other social networking companies. User backlash also arose from changes to WhatsApp’s privacy policy, with concerns over the collection and sharing of user data and a migration of users, as competing messaging app Signal overtook Facebook and Instagram in weekly downloads in India. A recovery drove the stock back up to $282.05 on 26th Jan, as social network platforms acted to ban Trump, political advertising and misinformation. This was met with another drop in the share price following the release of Facebook’s Q4 2020 performance. Despite beating analyst predictions for gross revenue and revenue per user, the falling share price was in response to the company’s relatively higher expenses in this quarter, which reflects the increased costs in tackling regulatory scrutiny, data security measures and misinformation on its social networking platforms.

Source: StockGeist

Week commencing 15th February 2021

Following the market holiday for Washington’s birthday on Monday 15th February, Facebook opened stock opened the week on Tuesday with a 1.46% rise in the first half-hour from $270.54 to $274.13; a level roughly maintained through to Wednesday. On Thursday, this trend broke as the stock failed to recover from its drop in after-hours trading, closing the day 1.53% lower than previous. This was a result of Facebook’s protest to Australian legislation, which demands Big Tech companies including Google and Facebook to pay for reposted content from Australian publishing companies, where Facebook responded by blocking Australian users from viewing news content on its platform. Unfortunately, this had repercussions as a number of important, non-news pages were blocked; from a number of domestic charities to government COVID-19 public health pages, leading to the stock experiencing a bigger drop of 3.08% on Friday.

This fall is reflected in StockGeist’s sentiment data as negative data increases and positive data decreases by percentage (graphed above), with a sharper change on Friday matching the sharper drop in price. The negative response to essential pages being blocked can also be seen through the volume negative messages detected by StockGeist in the news and social media, with a respective 220% and 435% increase for informative and emotional messages from Wednesday to Friday.

Accuracy Test

Following the methodology from the Apple stock report, this analysis was performed to determine whether positive messages detected by StockGeist translated into an increase in stock price, and whether negative translated into a decrease in stock price; specifically for Facebook stock trading in the week commencing 15th February 2021. Please note that this analysis is not investment advice. Owing to the fact that most of the price increases for Facebook stock this week were relatively small, positive messages were not very accurate in this week for determining price increases. On the other hand, the negative messages displayed much higher levels of accuracy, reaching 100% in the 0.6x thresholds for both emotional and informative messages. While the thresholds were not indicative of the average price change for informative negative messages, as the threshold for emotional negative messages increased, so did the magnitude of price change. This sentiment data from StockGeist, particularly the emotional negative data, was therefore extremely useful tool to highlight falling prices in this week of trading.

Outlook and Conclusion

Facebook stock has since shown recovery, as it restores pages that were inadvertently blocked and strikes a deal with the Australian government to restore the unblock the remaining news pages, in return for a two-month mediation period for Facebook to strike commercial deals with Australian publishers. So far, there have been no clear trends for an overall rise or fall in Facebook stock price for 2021. One persistent factor has been Facebook stock’s underperformance in comparison to the S&P 500, which has risen 5.66% in 2021, while Facebook has declined by 1.17%. Technical analysis implies that Facebook is currently undervalued and should experience an increase in share price, however this is contrasted with the increasing regulatory scrutiny that will affect Facebook’s potential profitability, with the recent Australian case being one example of Facebook’s many ongoing battles against government regulation and lawsuits.

The worst-case scenario of a forced divesture of Instagram and WhatsApp is unlikely, and Facebook’s upside remains high with the projected growth in the digital advertising, alongside userbase expansion strategies, such as Facebook’s recently acquired stake of 9.9% in Jio Platforms to increase penetration into the Indian market. The launch of Diem (formerly Libra) is also expected in 2021 as Facebook’s move into cryptocurrency and the projected growth of the VR market will likely increase Facebook’s revenue via Oculus. While regulation may hinder the realisation of this upside, this analysis has indicated StockGeist as a useful tool in understanding the market sentiment in real-time, along with which direction the stock is likely to take.

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