Facebook Inc. (FB) stock is moving upward as the market awaits a white paper on the company's hotly anticipated cryptocurrency offering on Tuesday, June 18.
Shares of the Menlo Park, California-based company were up nearly 2% before Monday's opening, extending gains for the month of June after an inauspicious end to the month of May for Facebook, which is a holding of Jim Cramer's Action Alerts PLUS charitable trust.
"Facebook has more than 2.7B active users and is still growing users double-digits year over year," RBC Capital Markets analysts Mark Mahaney and Zachary Schwartzman wrote in a note to clients. "The large amount of data collected on these users is a unique and valuable asset for ad and content targeting."
The two added that Facebook remains one of the most undervalued companies in the Internet sector based on the numerous levers it still can pull to unlock value for shareholders, many of which could be aided by a cryptocurrency and blockchain effort as backing.
"We believe Facebook will use crypto to facilitate a platform for Payments, Commerce, and Applications & Gaming," the RBC team said. "We believe this strategy is a multi-step process, starting with a focus on user engagement through messaging and leading to further monetization with each subsequent, deeper step - a similar strategy that has worked well for Facebook's Core Advertising business."
Facebook CEO Mark Zuckerberg recently addressed this aim at a Facebook Developer Conference in April.
"What we expect is as we build out more commerce-related features around shopping and Instagram and Marketplace and Facebook and certainly the private social platform that I've been talking about, I think will lend itself to private interactions around payments and commerce and interacting with businesses in that way," Zuckerberg said. "I believe it should be as easy to send money to someone as it is to send a photo."
The release of the white paper is also coming at an opportune time as cryptocurrency popularity picks back up. The price of bitcoin (BTC) has nearly tripled from the start of 2019, for example, and could carry significant momentum into the expected 2020 launch of Facebook's effort.
The issue for Facebook as it enters a space that some experts have dubbed the "new architecture of trust" is that it has been less than trustworthy for many more wary users.
The company has drawn the ire of regulators worldwide and, along with Alphabet Inc. (GOOGL) , has incurred billions in fines from European regulators in particular. Consequently, a global currency available for use across borders will likely draw serious scrutiny and pushback from lawmakers.
Even if they are not encumbered by governments, cryptocurrencies need substantial buy-in from users, and much of the appeal of cryptocurrencies is their divorce from either governmental or corporate oversight.
Hitching cryptocurrency hopes on Facebook and Zuckerberg might be a hard sell in this context.
"If Facebook's foray into crypto proves to be successful, we believe a potential existential risk may arise from a rapid, global consumer adoption of crypto tokens for payments and commerce," the RBC team added as a broader risk. "Specifically, we believe this could become an existential risk for banks and other traditional, centralized platforms. Depending on the cryptoeconomics outlined in the upcoming White Paper, the transaction history of each token (and wallet) may be available to node operators (banks, governments, corporations, etc.). This may face consumer backlash in the long run."
The exposure of crypto wallets to potentially nefarious privacy practices and many of the powerful entities that cryptocurrency have sought to avoid in the past would add yet another headache for a company harangued by both government and consumer backlash already.
The overseers of the project, a group called the Libra Association, includes the likes of Visa (V) , Mastercard (MA) , and PayPal (PYPL) as well as a host of venture capital firms and app economy leaders such as Uber (UBER) and Lyft (LYFT) .
Don't Bet Against the 'Book
Despite the risks, many see the currency as a no-brainer in terms of an addressable market for Facebook, and as such market minds are not ready to pan the effort.
"They have more 1B user products than any other company I believe," Anthony Pompliano, partner at Morgan Creek Digital, wrote late last year upon rumors of the currency percolating through the crypto world. "They out-executed everyone historically."
Pompliani noted that executives in charge of the unit, such as former head of messaging products and current head of blockchain David Marcus, make betting against the company "insanity." It is worth noting that Marcus was also a board member at major cryptocurrency exchange Coinbase, and formerly was president of PayPal.
"I'll ride with that crew any day when it comes to building, launching, and scaling products," he said. "Ask their competitors how it went last time."