How to profit from Facebook's Stablecoin

Published date: 30/06/2019
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There have been significant bullish surges across various asset classes recently. Bitcoin has hit 12-month highs, and the S&P 500 hit an all-time high of $2965 just this week. However, there may well be another investment which is gearing up for its own individual upward run. The social media giant, Facebook, recently announced their own cryptocurrency stablecoin, “Project Libra”:

“Libra will help create global financial inclusion. The announcement was quick to find traction within the cryptocurrency community that was left torn on whether this will help with overall adoption or not”

 

Facebook is planning to launch Libra in the first half of 2020, and from until them, many elements are still to come into play. Firstly, the potential impact of  Libra will have on the e-commerce industry (which is already hugely dominated by Instagram and Facebook). The recognised portal Entrepreneur.com, published anarticletitled "Google, Facebook and Amazon are the only winners in E-commerce" in which stated the following:

“As costs keep going up and up for the e-commerce businesses, that means advertising revenues keep going up and up for Google, Facebook and Amazon, making them the real money-makers... if advertisers are willing to invest up to one third of their revenues into consumer marketing efforts, that is more than $150 billion of largely free and clear profits. At the same time, marketing costs continue to soar to higher and higher levels".

 

Alongside the commercial impact, the subsidiary company “Calibra” will also have a key role to play as Facebook is projecting to enter the financial industries by offering wallet services and international transactions at minimal costs.  Easy global payments can be the strongest feature, with individuals being able to send money through the massively-used platforms Facebook Messenger and WhatsApp. Full financial connectivity and accessibility are the promises made by Facebook’s team during the announcement, with the team affirming that they: 

“hope to offer additional services for people and businesses, like paying bills with the push of a button, buying a cup of coffee with the scan of the code or riding your local public transit without needing to carry cash or a metro pass. Libra's mission is to enable a simple global currency and financial infrastructure that empowers billions of people”.

 

Facebook has received key support from major partners for Libra. Mastercard, Visa, Spotify, PayPal and eBay are part of the association in charge of creating the spine of the cryptocurrency.  Specifically, David Marcus, former Paypal President, will be the head of the revolutionary project

Facebook Inc. recent price action clearly shows that Libra’s announcement has already been priced in, with shares surging 12% in the last three weeks.  The question many traders are asking themselves is: is there room for more growth? 

Evaluating the yearly trend, FB is above the 200MA since January 2019, showing clear strength in long term momentum. The average volume of Facebook shares in the last 3 months has been $17.21M, in addition, during the last 10 days, the volume has spiked to $23.55M.

Breaking down financial data, forecasts are projecting corporate revenues to increase to  $17.05 Billion during the next quarter (Sep 2019). Next year revenues (2020) are projected to surpass the $84 Billion mark according to many financial analysts. If we compare the projected yearly figure with 2017, that would be a $14.79 Billion yearly increase (21.30% on sales growth approximately). 

The financials are strong as well. Price-earnings ratio is a great measure of potential future growth. It measures current market value per share over the earnings per share. It is often used by traders to measure investors future expectations. Facebook’s current P:E is 28.46 and the current ratio is (which covers current liquidity) 5.38. This ranks higher than 98% of the companies in the global tech industry. By comparing this against market benchmarks, it is evident that investors have a positive growth expectation. Facebook P:E is performing better than Twitter (20.60) and even Alphabet Inc. (27.79).  The maximum PE level reached was 110.11 in November 2015. On average, FB PE ratio has performed at around 54.09! 

In conclusion, both scopes (fundamental and technical) are showing that bullish momentum on FB shares is strong, and there may be space for more as FB is 14.31% away from its all-time highs. Libra could definitely be the missing piece that investors have been awaiting. The project has the potential to revolutionise digital business as the team has the resources to pull this off. The decision to enter the crypto market is nothing but good timing and if partnerships and global blockchain adoption perform as expected, then FB-long certainly looks to be a great trade. 

Libra still has many obstacles ahead,  with regulators already putting their eyes on the project.  Recent privacy issues faced by Facebook need to be cleaned fully and prospects will be expecting full transparency before investing. Also, anti-money laundering policies will be a key condition imposed on Libra by the financial system and it will be very interesting to see how FB’s team works on that too. It would not be a surprise if each one of these difficulties gets solved, because let's be honest, is there anything Facebook can’t do at this point?


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