At first, it looked like analysts weren’t going to be moved by the latest set of troublesome headlines on Facebook, Inc. (FB), but now, some are finally starting to waver. Facebook stock continued to tank on Tuesday after erasing more than $40 billion from the company’s market cap. At least one firm trimmed its price target for Facebook, Inc. (FB) stock due to headline risk, although most analysts are advising investors to take advantage of the price weakness.
Investors sent Facebook stock tumbling on Monday following allegations of data misuse by Cambridge Analytica. On Tuesday by late morning, more than 50 million shares of Facebook, Inc. (FB) stock had changed hands, which is nearly double the 50-day average daily volume. If this pace of dumping FB shares continues, we could be looking at a one-day volume that’s roughly four times as many as the average daily volume.
Analyst trims price target for Facebook stock
In a note to investors this week, Macquarie analyst Benjamin Schachter said he trimmed his price target for Facebook, Inc. (FB) stock ever so slightly from $205 to $200 per share, but he maintained his Outperform rating. A review of other price targets on Facebook, Inc. (FB) stock reveals that he seems to be one of the biggest bears on it right now, despite that Outperform rating, although Stifel does have a Hold rating and $195 price target ton FB stock after downgrading it in January.
Schacter describes himself as being “very much concerned that the systemic risk around data-driven online advertising and specific concerns about FB’s data are rising quickly.” Specifically, he’s worried about three main implications for Facebook, Inc. (FB) stock in connection with the headline risks.
One of his concerns is that these latest headlines could result in increased regulatory, legal and political scrutiny around the globe, which raises uncertainty and risk around the shares. He also feels that the tides on “connotations” around social media are turning and that negativity is on the rise, which increases long-term risk.
When it comes to the company’s financials, he’s concerned that the company will “take more radical actions than it has in the past to limit the use of audience segmenting, ad targeting, data sharing, and other privacy related issues that could lower the monetization of FB data.” He also reminds us again that CEO Mark Zuckerberg controls the voting at Facebook, Inc. (FB) , which means he can pretty much do whatever he wants because shareholders have no real power to oppose him.
Facebook stock appears to be oversold
Bank of America Merrill Lynch analyst Justin Post has a much more bullish price target of $265 per share on Facebook, Inc. (FB) stock, and he focused on the increase in negative sentiment around the shares. The fact that there was a tie between the data firm accused of wrongful mining of data from users and the Trump presidential campaign increases further the concerns about the role the social media firm might have played in the election.
Like Schacter, Post also expects Zuckerberg to make additional “high level changes” to the company’s content or data policies. He’s also concerned that users might spend less time on it and cut back on their consent to share their data. Post sees one of the big themes for FB this year as rebuilding trust. He said it’s important that there was no actual “data leakage or breach on Facebook’s part,” as the company emphasized that the characterization of the incident as a “data breach” is inaccurate. However, he also warned that FB is being seen as an “enabler” because it didn’t alert users that their data was collected without their consent.
He added that Facebook, Inc. (FB) stock “seems oversold,” although he also doesn’t see many catalysts for it in the near term. He warned that sentiment around FB could remain under pressure until visibility around the recent headlines improves.
Facebook stock multiple is compressed
Despite all the risks, Deutsche Bank analyst Lloyd Walmsley describes FB’s valuation as “extremely compelling,” so he maintained his Buy rating and $235 price target for the shares. However, he also emphasized that this view is strictly for long-term investors “who can stomach near term volatility.”
Morgan Stanley analyst Brian Nowak is also just as bullish as ever on Facebook, Inc. (FB) stock, as he maintains his $230 price target and Overweight rating on it. He said that the FB stock multiple has reached a bottom, but he added that this isn’t anything new. He said it has compressed to about 18 times his 2019 estimate for GAAP earnings per share, which makes it cheaper than Alphabet, eBay and many other S&P constituents that are growing more slowly and/or have less monetization potential.
In order for Facebook, Inc. (FB) stock to pull a higher multiple, he believes the company must be able to “improve the narrative and to help investors/ users/ advertisers feel confident that there is not a structural ‘data’ risk to engagement or monetization.”
Facebook stock plunged by more than 5% in intraday trading on Tuesday, diving as low as $161.98 per share.