Facebook, Inc. (FB) stock was in recovery mode on Wednesday after a rough couple of trading days due to the data scandal involving allegations against Cambridge Analytica. Analysts have been trying to reassure worried investors that Facebook stock is still a wise investment, and it seems like they may have finally succeeded.
Analysts unanimous on Facebook stock: buy on weakness
In a note to investors this week, KeyBanc analyst Andy Hargreaves reiterated his Overweight rating and $245 price target on Facebook stock. He noted that uncertainty around FB has increased due to the negative headlines and the company’s own “poor navigation” of the issues. However, he still recommends buying Facebook stock, at least for now.
He did warn that the data scandal will probably have “real-world ramifications that could include advertiser hesitancy, reduced engagement, increased expenses, formal regulation, operational distraction, and impacts to hiring.” Nonetheless, he sees little risk to the social media firm’s long-term ability to generate cash, so he believes that all the recent “hype and momentum are creating a buying opportunity” for Facebook stock.
Indeed, Ad Week reports that so far, marketers aren’t switching any of their ad budgets away from Facebook due to the data scandal, although they are concerned about what kinds of data Cambridge Analytica may have had access to. According to the media outlet, advertisers struggle to retrieve stats from Facebook’s platforms and “complained about strings of measurement snafus,” but they wonder how much more data the company is giving app developers access to, compared to what it’s allowing advertisers to see.
Perspective on FB
The KeyBanc analyst also placed some solid numbers down to give investors some perspective. He explained that, excluding energy firms, there are 80 companies listed in the U.S. that have a market capitalization higher than $1 billion and that trade at an EV/EBITDA multiple of 19 to 21 times. FB is trading at a multiple of about 19.6 times.
Hargreaves estimates the average annualized EBITDA growth for this group at 18% over the next two years, versus his estimate of 31% for Facebook through next year. Further, he explained that in order to match the average pace of growth among other companies that have similar prices, Facebook would have to lose about 55 million daily users at “2019 U.S. monetization levels,” which he sees as “unlikely.”
Zuckerberg remains silent on the issues
One of the biggest problems for Facebook stock right now is the lack of any comment from CEO Mark Zuckerberg, who has historically been very open regarding other issues that his company have faced. The hashtag #WheresZuck has been trending on Twitter, and CNN Money reported that executives at Facebook have been anonymously expressing frustration with his silence on the matter.
Zuckerberg may be about to break his silence, however, as NBC reports that sources familiar with the matter say that he will say something within the next 24 hours. Until then, the calls for him to say something on the matter will likely continue.
GBH Insights analyst Daniel Ives noted that the silence from Zuckerberg and other top Facebook executives has only added fuel to the fire sparked by Cambridge Analytica. He also warned that if the issue is “left to fester, it could take on a life of its own leading to tougher regulatory oversight/chatter.” On the other hand, he also said that if executives do handle it well whenever they finally respond, the problem will probably end up being a “manageable risk.”
Overhang to remain on Facebook stock for now
Ives expects the data scandal to remain an overhang for Facebook stock until investors can understand what changes will be made to the company’s ad and content model. Meanwhile, he’s keeping a watch over what regulators and politician are saying about the social media firm’s “business model being used for improper means post the Russian meddling situation and Cambridge issue.”
He noted that investors are concerned that this latest data scandal could cause European regulators and the Beltway to reopen the debate over regulations, potentially resulting in major changes to the company’s business model. Ives maintains his Highly Attractive rating and $225 price target on Facebook stock for now.
Jefferies analyst Brent Thill also expressed concern about the scandal’s impact on the regulatory environment in Europe. The EU’s General Data Protection Regulation is scheduled to go into effect on May 25 and requires total transparency from websites and online platforms regarding how they use the data collected from their users. Thill continues to rate FB stock as a Buy with a $230 price target.
Facebook stock initially climbed in intraday trading on Wednesday, rising by more than 1% to as high as $173.40 before hitting a ceiling and slipping back to where it was at closing bell on Tuesday.