Facebook stock has 23% upside as headline risk is priced in and 3 billion users continue to flock to the platform, Morningstar says

A person using the Facebook app on their smartphone in front of a laptop.

Facebook stock still has a 23% upside even as headline risks continue to pummel the social media giant, from the recent investigative series revealed by The Wall Street Journal to the seven-hour outage that disrupted service for billions of users.

Morningstar is calling $US407 ($AU559) the fair value for Facebook stock, reflecting a 23% upside from the company’s current stock price, trading around $US329 ($AU452) as of 10:25 a.m. ET Tuesday.

“While the stock will likely remain under pressure from negative news, we think Facebook’s network effect remains intact,” Morningstar said in a note Tuesday. “We remain confident that while the firm’s user growth, engagement, and monetization may weaken somewhat, with nearly 3 billion monthly active users worldwide, a reversal of its platforms’ flywheel effect remains unlikely.”

The firm estimated between a $US110 ($AU151) million-$US120 ($AU165) million loss in advertising revenue for the company during Monday’s outage, less than 0.1% of its 2021 total revenue estimate for the firm, an amount it described as “negligible.”

Still, the firm says Facebook user and monetization growth decelerating shortly after the widespread incident is possible, just as both did during the Cambridge Analytica ordeal in 2016. Such a scenario, it said, may lead to a $US379 ($AU520) Facebook valuation, 7% lower than its base case.

There is also one key threat Morningstar sees will likely have the most enduring effect on the firm: Instagram’s negative impact on younger girls.

News has been swirling that social media usage has had toxic effects on teenage girls, but The Journal’s reporting, based on accounts by Facebook employee Frances Haugen who stepped forward as a whistleblower, painted a grim picture of Facebook’s awareness of how it negatively impacts the lives of some of its users.

This, Morningstar said, will likely reduce user growth and engagement, assuming that Facebook will exercise more control over Instagram, making the photo-sharing platform’s audience less attractive to advertisers. However, a limitation could also be positive for Instagram and Facebook, the firm added, since they may be perceived as safer platforms for younger users.

The Chicago-based firm also noted that small and midsize businesses will continue to find Facebook’s properties one of the most efficient ways to reach consumers even as large companies abandon the platform.