Facebook (NASDAQ:FB) stock surged by nearly 10% after Election Day 2020, as Democrats failed to materialize a blue wave. That jibes with investor concerns heading into the election, which were fueled by worries a Democrat-controlled government would install sweeping reform across the Big Tech landscape. Bad news for Facebook stock, right?
Well, that’s not going to happen.
Which is why Facebook’s stock is flying higher.
Now, Facebook is ready rip significantly higher in 2021.
Facebook Stock: Rebounding Ad Spend
Facebook just reported really good third-quarter numbers that underscored one big picture reality: Businesses are picking up their ad spending.
Facebook’s ad revenues in the third-quarter rose 22% year-over-year, up significantly from the 10% growth reported in Q2 and on par with the 20%-plus growth rates Facebook was reporting throughout all of 2019.
In other words, Facebook’s ad revenue growth trends are “back to normal.” It’s not just Facebook. Twitter (NYSE:TWTR). Pinterest (NYSE:PINS). Snap (NYSE:SNAP). They all reported numbers that broadly underscored that digital ad spending is back to normal.
Going forward, digital ad spending trends will only improve, because economic activity is picking up as Covid-19 hysteria abates and as consumers and businesses alike learn how to adapt to the virus. At the same time, digital engagement remains at all time high levels, and because ad dollars chase eyeballs, the implication is that advertisers will continue to overemphasize the digital channel in their spending budgets.
Net net, the outlook for the digital ad market in 2021 is exceptionally bullish. Facebook is the most important player in that market. Therefore, by extension, the outlook for FB stock in 2021 is exceptionally bullish, too.
The Instagram Reels Surge
TikTok — the most viral and popular video app in the world today — is losing momentum, and that is Facebook’s opportunity to grow its TikTok clone, Instagram Reels.
Thanks to political scrutiny among other factors, there has been a noticeable exodus among TikTok’s top creators over the past few months. What’s more, TikTok’s download rank in the U.S. iOS App Store continued to trend lower. Personally, I know more than a few folks who went from being daily TikTok users to deleting the app completely. I’m calling it “peak TikTok.”
Those ex-users will find solace in Instagram Reels, as roughly 90% of TikTok users think Reels is “basically the same.” And 60% say they will spend more time on Instagram because of Reels.
Which is why Instagram Reels will see a surge in user uptake during the next few quarters. This, in turn, will filter through to usage numbers over at Facebook, thus sparking accelerated sales growth.
Attractive Valuation for Facebook Stock
When I look at FB stock today, I see an attractive, high-quality asset that is extremely undervalued.
Consensus 2022 earnings estimates on Facebook presently sit around $12.50. This company has a long history of smashing earnings estimates by 20 cents or more every quarter. Plus, my modeling actually pegs Facebook’s earnings at $15 per share in 2022.
Regardless, it’s very likely that Facebook does at least $13.50 in earnings per share in 2022. The stock’s five-year-average forward earnings multiple is about 26. A 26X multiple on $13.50 in 2022 earnings per share implies a 2021 price target for FB stock of over $350.
So, zooming out, Facebook stock has clear and fundamentally supported runway to 20%-plus gains over the next 12 months.
Bottom Line on FB
With political headwinds sidelined, Facebook stock has clear runway to big gains over the next 12 months.
So buy FB stock. Ignore further political noise. And ride this rising stock to $350-plus prices by this time next year.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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Written by Luke Lango.
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