CEO Mark Zuckerberg announced on Friday that his company will no longer be holding a Facebook stock split, but this news has no impact on our bold Facebook stock price prediction.
Yes, the price of Facebook Inc. (Nasdaq: FB) stock is down 4% today (Sept. 25, 2017) because of the cancelation news. Despite the drop, we're reiterating our bullish FB stock price target for 2020 today.
That's why we view any dips in the Facebook stock price as a buying opportunity for long-term investors. Long-term investors should not give in to this short-term sell-off.
Why the Facebook Stock Split News Is Causing a Short-Term Sell-Off
In a December 2015 Facebook post, Zuckerberg said he wanted to donate 99% of his shares throughout his lifetime to his charity, the Chan Zuckerberg Initiative.
While generous, donating nearly all of his shares would have left him without majority voting rights for Facebook.
In order to keep control, Zuckerberg proposed a 3-for-1 stock split in Facebook's Q1 2016 earnings call on April 27, 2016. On the Facebook stock split date, shareholders would have received three newly created Class C shares for every one share of Class A or Class B they owned.
But unlike Class A or Class B shares, Class C shares would not have had voting rights.
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Shareholders voted for the 3-for-1 split on June 20, 2016, but the results were already a foregone conclusion. Zuckerberg controlled nearly 60% of the voting power as of June 2016, so the vote obviously passed.
Following the vote to split FB stock, Zuckerberg did not provide any updates. That's why his Sept. 22 Facebook post announcing the split cancelation came as a surprise.
His reasoning was the FB stock price had climbed so much that he could fund the Chan Zuckerberg Initiative with fewer shares.
That's true, as the Facebook stock price opened at $113.77 per share on June 20, 2016, and has since climbed 48.75% from today's opening price of $169.24.
But the announcement raises questions and is dragging down the FB stock price today...
Why the FB Stock Split Is Dragging Down the FB Stock Price Today
Shareholders may be worrying Zuckerberg had to cancel it because of damaging information about the company.
He was supposed to testify in the Delaware Court of Chancery on Sept. 26 because of a lawsuit filed against Facebook by shareholders. A group of shareholders allege Facebook's board members did not act in their best interest when they approved of the stock split.
Leaked information obtained by Bloomberg shows Marc Andreessen was communicating with Zuckerberg during the proposal in an effort to help him sway other board members.
According to Bloomberg, texts from Andreesen to Zuckerberg during a live call said, "This line of argument is not helping," and "NOW WE'RE COOKING WITH GAS."
Of course, it's just speculation Zuckerberg is canceling the split to avoid testifying.
Keep in mind, the 50% increase in the FB stock price since the split vote allows Zuckerberg to donate more money with fewer shares.
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While the media continues to speculate about the split, the bigger story here is the bullish outlook we continue to have for FB stock.
Here's how high we see shares climbing...