Shares of Facebook (FB) were in focus on Tuesday after the company shared its plans for Calibra, a recently formed Facebook subsidiary that will introduce a digital wallet for Libra, a new global currency powered by blockchain technology. Commenting on the news, DA Davidson analyst Alan Gould told investors that Facebook's crypto-coin service "completes the loop" from customer acquisition to private B2C communications to enabling secure transactions, and that he sees the business as a "large global opportunity."
BLOCKCHAIN CURRENCY LIBRA UNVEILED: Facebook announced on its website, "Today we're sharing plans for Calibra, a newly formed Facebook subsidiary whose goal is to provide financial services that will let people access and participate in the Libra network. The first product Calibra will introduce is a digital wallet for Libra, a new global currency powered by blockchain technology. The wallet will be available in Messenger, WhatsApp and as a standalone app - and we expect to launch in 2020 [...] From the beginning, Calibra will let you send Libra to almost anyone with a smartphone, as easily and instantly as you might send a text message and at low to no cost. And, in time, we 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 a code or riding your local public transit without needing to carry cash or a metro pass [...] When it launches, Calibra will have strong protections in place to keep your money and your information safe. We'll be using all the same verification and anti-fraud processes that banks and credit cards use, and we'll have automated systems that will proactively monitor activity to detect and prevent fraudulent behavior. We'll also offer dedicated live support to help if you lose your phone or your password - and if someone fraudulently gains access to your account and you lose some Libra as a result, we'll offer you a refund.”
LIBRA AMONG 'MOST IMPORTANT' INITIATIVES: Reiterating a Buy rating and $200 price target on the stock, DA Davidson’s Gould said he views Facebook's new digital currency Libra as among its "most important initiatives" in the efforts to "commercialize the value" of its messaging platform. The analyst noted that Facebook's crypto-coin service "completes the loop" from customer acquisition to private business-to-consumer communications to enabling secure transactions, and sees the business as a "large global opportunity" that also offers the company diversification from advertising revenue. Currently trading at 20.5-times his expected fiscal year 2020 earnings, Gould argued that Facebook's market valuation does not fully account for the full monetization potential of its WhatsApp or Messenger platforms.
'POTENTIAL WATERSHED MOMENT': Also commenting on the news, RBC Capital analyst Mark Mahaney said he views Facebook's introduction of the Libra currency as a "potential watershed moment" for the company and global adoption of crypto. In terms of scale and importance, the analyst believes this new financial infrastructure could be viewed similar to Apple's (AAPL) introduction of iOS to developers over a decade ago. He reiterated an Outperform rating and a $250 price target on Facebook’s shares.
Additionally, Mahaney highlighted that Libra is fully backed by a reserve of real assets and will be governed by the Libra Association, an independent, not-for-profit membership organization. The founding members include MasterCard (MA), PayPal (PYPL), PayU, Stripe, Visa (V), Booking Holdings (BKNG), eBay (EBAY), Facebook/ Calibra, Farfetch (FTCH), Lyft (LYFT), Mercado Pago, Spotify (SPOT), Uber (UBER), Iliad, Vodafone, Achorage, Bison Trails, Coinbase, Xapo, a16z, Breakthrough Initiatives, Ribbit Capital, Thrive, USV, Creative Destruction Lab, Kiva, Mercy Corps, and Women's World Banking.
GROWTH PROSPECTS EXPANDED: In a research note ahead of Libra’s announcement, SunTrust analyst Youssef Squali reiterated a Buy rating and $215 price target on Facebook’s shares. The analyst noted that this is a "major initiative" for the company as it would "materially" expand its growth prospects and total addressable market. Squali also stated that the crypto foray is a "strong indicator" of Facebook's "intent to become a transactional platform."
On Friday, Craig-Hallum analyst Brad Berning had also told investors that a Facebook cryptocurrency would be a "positive" for Buy-rated PayPal, as it could drive higher adoption of Braintree merchant acceptance and the Facebook marketplace, which according to CFO John Rainey, could dwarf eBay.
PRICE ACTION: In morning trading, shares of Facebook had gained almost 2% but the stock has since given up those early gains. In early afternoon trading, Facebook is fractionally higher at $189.25 per share.
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