Mon, 22 Jul 2019

Facebook shares rallied on Tuesday after the company unveiled plans for a new cryptocurrency, a move that analysts saw as a potentially major new profit stream.

Shares rose as much as 2.9%, though they pared much of that advance, last trading up 1.1% on the day. The stock was on track for its fourth straight positive session, extending a recent climb. Facebook is up nearly 17% from a low hit earlier this month.

The recent advance has been fuelled, in part, by anticipation over the crypto announcement, and the release of a white paper detailing the initiative spurred additional enthusiasm, for both Facebook and digital currencies.

"We view Facebook's introduction of the Libra currency as a potential watershed moment for the company and global adoption of crypto," wrote Mark Mahaney, an analyst at RBC Capital Markets who has an outperform rating and $250 price target on Facebook shares. "In terms of scale and importance, we believe this new financial infrastructure could be viewed similar to Apple's introduction of iOS to developers over a decade ago."

Introducing Libra

The digital currency, called Libra, is expected to launch as soon as next year. It was designed as a way for Facebook users to send and receive money through its messaging services.

Loop Capital Markets wrote that this service represented "a large global opportunity," and a way for Facebook to diversify away from advertising revenue. "This is among the most important initiatives at the company and may be critical to commercializing the value of its messaging infrastructure," analyst Alan Gould wrote, affirming his buy rating and $200 price target.

Citi, in a report published June 17, wrote that Libra could represent "a meaningful new product and profit stream" over the coming years, calling it a path "to printing even more money."

Despite the bank's optimism - it has a buy rating and $212 price target - Citi noted that "the regulatory framework for cryptocurrencies remains uncertain," and wrote that the cryptocurrency will be "an important test for how well Facebook has been able to (or will be able to) overcome the recent questions about its trustworthiness."

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