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Facebook is still a ‘revenue juggernaut,’ asset manager says — so buy on the dip

  • Facebook is center stage this week as founder Mark Zuckerberg testifies to Congress over issues relating to its mismanagement of user data and privacy.
  • Facebook shares rose the hearing, chalking their biggest daily gain in almost two years and adding around $17 billion onto the social media giant's current market cap.
Facebook CEO Mark Zuckerberg arrives to testify before a joint hearing of the Commerce and Judiciary Committees on Capitol Hill in Washington, Tuesday, April 10, 2018, about the use of Facebook data to target American voters in the 2016 election.
Andrew Harnik | AP
Facebook CEO Mark Zuckerberg arrives to testify before a joint hearing of the Commerce and Judiciary Committees on Capitol Hill in Washington, Tuesday, April 10, 2018, about the use of Facebook data to target American voters in the 2016 election.

Facebook is center stage this week as founder Mark Zuckerberg testifies to Congress over issues relating to its mismanagement of user data and privacy.

Amid an uncertain future for the technology sector's regulatory environment and its effect on the markets, one asset manager is particularly bullish on the social media company.

"Let's face it, they're a revenue juggernaut," Carol Pepper, chief executive of New York City-based asset management firm Pepper International, told CNBC's "Squawk Box Europe" on Wednesday.

"I think Mark Zuckerberg will continue to defend the company successfully, I think the stock will recover and they'll continue to be a big cash earner."

Named one of the top 50 most influential women in private wealth by Private Asset Management, Pepper manages money for people with over $100 million in assets.

Wall Street responded positively to Zuckerberg's performance Tuesday after the first of two rounds of questioning. Facebook shares rose during the hearing, chalking their biggest daily gain in almost two years and adding around $17 billion onto the social media giant's current market cap.

Speaking to members of the Senate Commerce and Judiciary Committees, the 33-year-old multi-billionaire apologized for a lack of data protection on the platform, but did not back any specific regulatory changes to Facebook. He did say that his company would welcome "the right regulation," although he did not elaborate on what that might look like.

The testimony's aftermath and ultimate government response will have major consequences, not only for Facebook but for technology and digital advertising companies more broadly. The social media platform has been under fire and suffered heavy losses since the revelation that political research firm Cambridge Analytica had allegedly harvested the data of up to 87 million users. Shares fell 11 percent since the scandal came to light.

But now is a time to buy on the dip, says Pepper. "I think (Zuckerberg) will be very deft in handling it," she said of the controversy. "The dip is a buying opportunity as far as I'm concerned, and it is a good long-term hold."

Daniel Ives, head of technology research at GBH Insights, agrees. GBH currently maintains a "highly attractive" rating for Facebook, with a worst-case scenario of 3 percent in annual advertising revenues at risk for 2018 based on slowed user growth and reduced engagement.

Ives described Zuckerberg as "conciliatory" and taking ownership while firmly defending Facebook, "its $50 billion advertising fortress and golden business model which is sending a bullish message to the Street."

"So far, the fundamental damage to the Facebook platform has been 'contained' in our opinion and is better than feared," Ives wrote in a research note, while maintaining that the months ahead will be both challenging and defining.

Bank of America's Facebook downgrade

Still, not all market players agree on Facebook's future. Bank of America Merrill Lynch in early April removed the internet company from its US1 list of best investment ideas and cut its target price twice in March, citing the Federal Trade Commission's probe into its data practices. It maintained its buy rating for Facebook, but expressed concern over the "risk of civil penalties on data privacy violations" that could take years to resolve, according to a client note.

More broadly, tech stocks face an uncertain future in the face of potential regulation and market volatility, and since February the market has seen dominant players like Amazon, Tesla and Facebook lose their leads at different points. But Pepper is confident that the industry giants will perform well in the long run.

"Over 10 and 20 years, Amazon, Facebook, these kinds of stocks are going to continue to do extremely well," she said. Previous years would be a positive indicator — between 2013 and 2017, Facebook's revenue grew from $7.87 billion to $40.7 billion, ranking first in social media company revenues. And Amazon's stock price has grown a whopping 415 percent from 2013 to today.

"Put those technology ETFs (exchange-traded funds) or stocks in your children's college accounts and your retirement accounts and go to sleep," Pepper said. "Because, yes there will be volatility, but if you look at the rate of change and the direction over the last five, 10 years, it's up. This is where all the profit is migrating to."

Pepper owns Facebook and Amazon stock both professionally and personally.

—CNBC's Tae Kim contributed to this report.