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Facebook Inc A FB

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Morningstar’s Analysis

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1-Star Price


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Economic Moat


Capital Allocation


We See Minimal Impact of Election 2020 on Facebook and Alphabet; Maintaining FVEs

Ali Mogharabi Senior Equity Analyst

Analyst Note

| Ali Mogharabi |

With the final races of the 2020 elections decided, our views regarding the potential impact of antitrust suits and legislative efforts against Alphabet and Facebook have not changed. We think the antitrust suits against both firms will ultimately be decided by the U.S. Supreme Court, which is likely to apply what’s known as the consumer welfare standard—benefiting Alphabet and Facebook. In addition, given the Democrats’ only slight advantage in the Senate, we do not expect large changes to the antitrust laws or to Section 230 of the Communications Decency Act, which offers immunity from liability for Internet content. However, regulations surrounding data, which have bipartisan support, are likely. We are maintaining our $1,980 and $306 fair value estimates of wide-moat Alphabet and Facebook, respectively. While both companies are trading at a discount to our fair value estimates, they remain 3-star stocks.

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Company Profile

Business Description

Facebook is the world’s largest online social network, with 2.5 billion monthly active users. Users engage with each other in different ways, exchanging messages and sharing news events, photos, and videos. On the video side, the firm is in the process of building a library of premium content and monetizing it via ads or subscription revenue. Facebook refers to this as Facebook Watch. The firm’s ecosystem consists mainly of the Facebook app, Instagram, Messenger, WhatsApp, and many features surrounding these products. Users can access Facebook on mobile devices and desktops. Advertising revenue represents more than 90% of the firm’s total revenue, with 50% coming from the U.S. and Canada and 25% from Europe. With gross margins above 80%, Facebook operates at a 30%-plus margin.

1601 Willow Road
Menlo Park, CA, 94025
T +1 650 543-4800
Sector Communication Services
Industry Internet Content & Information
Most Recent Earnings Sep 30, 2020
Fiscal Year End Dec 31, 2020
Stock Type Aggressive Growth
Employees 56,653