Facebook Inc (FB) stock continued to slide on Monday after setting a new record high last week following the company’s Q4 2017 earnings release. Friday was marked by a broad tech selloff that saw investors dump most of the biggest names in the sector, and Monday wasn’t looking much better for most of the sector, including Facebook Inc (FB) stock.
Overhangs continue for Facebook Inc (FB) stock
Numerous analysts raised their price targets for Facebook Inc (FB) stock following the earnings report last week. Barclays analyst Ross Sandler raised his target for FB from $215 to $225 and said he thinks it “should grind higher” because it has “the most attractive multiple” of his large cap coverage. However, he also warned that he doesn’t see the overhangs that have been plaguing it dissipating any time soon, so he doesn’t see Facebook Inc (FB) stock “breaking out to the upside.”
Canaccord Genuity analyst Michael Graham boosted his price target for Facebook Inc (FB) stock from $230 to $240 per share. He continues to be impressed by the company’s ad metrics, although he noted that Facebook Inc (FB) missed the consensus numbers for monthly and daily active user growth. In fact, the metric slowed by the most it has since 2013. However, he also said that average revenue per user beat expectations and even accelerated by 1 point.
Sandler believes the changes management made during Q4 to address consumption of passive content had a negative impact on user growth and engagement. He noted that at 44%, ad revenue growth was slightly below buy-side estimates. Daily active user growth decelerated to 14%, while time spent per user has fallen 5% since the company made the changes.
Facebook Inc (FB) provides more color on News Feed changes
Graham said he applauds the social media firm’s move to boost the “quality” of the user experience and believes that the planned changes will reduce ad load while making the platform “more constructive.” On the earnings call, Facebook Inc (FB) management provided more details about what they’re planning to do to the News Feed algorithms. They’re planning to prioritize what they call “more meaningful social interactions over other metrics like time spent,” Graham wrote.
They’re also downgrading news posts from all outlets except big names, essentially abandoning the smaller contributors who helped build the platform. Graham applauds Facebook Inc (FB)’s preference for “meaningfulness,” and he doesn’t seem concerned by the company’s decision to impose its own opinion of “meaningfulness” on its users.
We would also note that the social media firm is making this shift at the precise moment that it missed the user consensus numbers. We obviously can’t know whether it’s a coincidence that the company suddenly prefers qualitative metrics over quantitative ones at the same time it suddenly missed user consensus. Facebook Inc (FB) is bumping up against some big numbers, so the company probably figures it’s a good time to divert attention away from measurable outcomes and toward something management can decide arbitrarily.
Facebook Inc (FB) stock tumbled by nearly 2% to as low as $186.45 in intraday trading on Monday.