We issued an updated research report on Facebook, Inc. FB on Jun 28, 2016.
The last week was a game changer for a number of big players in the global economy. Unexpectedly, the Brexit, the exit of Britain from the EU, happened.
In tune with the S&P 500 index, this social media giant also witnessed a substantial drop in shares following the mandate. Though the markets have corrected themselves to some extent, in the last few days, the ripple effects will likely be felt for a long time now.
Some analysts predict that Facebook will be a safe haven in these times of macroeconomic uncertainties. But if we look closely, even Facebook has a lot on stake after Brexit.
First of all, the company has its EU headquarters in Ireland through which it receives certain tax benefits. Now with Brexit happening, Facebook will have to chalk out a way to avoid paying higher taxes. It might also result in the relocation of its headquarters (and some other facilities as well) so that it continues to get the benefits of the EU bloc.
In addition, the social media giant will have to wade through too many uncertainties, given the fact that it will have to re-define everything from tax to data flow and privacy regulations for its operations in the UK.
The company does have strong growth prospects as it advances its Internet connectivity drive. An increase in user base would directly add more ad revenues to its coffers no doubt but the concern regarding its performance in the UK remains. It derives a sizeable portion of its revenues from that region (over 5% according to a FactSet report). Fears regarding UK going into recession further add to the concerns.
Nonetheless, the company has placed itself well with its other money-raking platforms like Instagram, Oculus, Messenger and WhatsApp, which would cushion the negative impacts to a great extent in our view.
At present, Facebook carries a Zacks Rank #3 (Hold). Stocks worth consideration include NetEase, Inc. NTES, PetMed Express, Inc. PETS and CommVault Systems, Inc. CVLT. All of these carry a Zacks Rank #1 (Strong Buy).
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