It doesn’t look like the turmoil Facebook Inc (NASDAQ:FB) is experiencing will end any time soon, despite analysts’ attempts to calm investor fears. Finally, we’re starting to see signs that one or two analysts are starting to see the new reality for Facebook stock. One analyst cut his FB price target, although he emphasized that he’s still bullish on the shares. Meanwhile, one of the few bears on Facebook stock forecasts investors’ worst fears coming true.
FB price target slashed
In a note today, Morgan Stanley analyst Brian Nowak said he slashed his FB price target from $230 to $200 per share, although he maintained his Overweight rating, citing his firm’s ad checks. They spoke to eight ad agencies or advertisers and said they aren’t sensing any “material reduction in ad spend.” However, Nowak cut his FB price target because he does expect the company’s revenue to fall, leading to lower earnings per share and resulting in his reduced price target.
Facebook announced this week that it’s halting its third-party data provider partnerships, and Nowak said investors have become concerned about revenues in the near term. Those third-party data providers greatly improved Facebook’s ability to target users with ads, enabling it to charge higher prices to advertisers and boost ad spend on its platform. However, Nowak feels that the company was wise to end those relationships.
He feels Facebook is still in a strong position, given its leading level of reach and the lack of compelling alternatives for advertisers. He also noted that at this point, it’s unclear what percentage of ad buying on the platform utilizes data from third-party data providers, so by ending those relationships, Facebook turns the focus onto the data it already holds itself. He also feels that in the wake of the data scandal, some advertisers might start using only their own data for buying targeted ads on the social network.
Focus shifts to opt-in rates to share data with Facebook
The data scandal involving Cambridge Analytica isn’t the only concern investors have regarding Facebook’s ability to target users with ads. The European Union’s General Data Protection Regulation (GDPR) goes into effect on May 25, and it requires users to opt into sharing their data for ad purposes. Facebook said it won’t extend its GDPR compliance measures to users in other parts of the world, but given the wide-reaching implications of those measures, it’s hard to imagine that this move won’t put the company at risk of violations. Even EU citizens who live in other parts of the world are protected by GDPR, which makes compliance tricky.
Deutsche Bank analyst Lloyd Walmsley met with an ad agency recently and came away “marginally more concerned” about the possibility of opt-in rates being low. Interestingly, he said the company seems to be taking a sort of “‘GDPR lite’ type of approach even outside the EU.” He also said that he came away from the ad agency meeting “slightly less optimistic” that Facebook might be able to “weather this change in how it leverages data.” He expects a short-term impact on cost per thousand impressions when the GDPR is implemented late next month, although he feels that the impact is more than priced into Facebook stock at this point.
Will the worst fears for Facebook stock come to pass?
Earlier this week, Pivotal Research analyst Brian Wieser amplified concerns for Facebook stock by warning that it could decline even further. He slashed his FB price target from $152 to $138 per share and set out a case that sounds like investors’ worst fears coming true. Wieser is one of the few analysts with a Sell rating on Facebook stock.
He warned in a note this week that the company is about to see its costs rise, as it will need to pay more to understand its users and partners. He also expects costs to rise in connection with the possibility of data regulation, and he warned that the data scandal involving Cambridge Analytica could cause advertisers to slash their ad spend.
Facebook stock initially plunged in early trading today before bouncing, although it didn’t pick up enough steam to get into the green. As of the time of this writing, the stock is down 0.42% at $155.39 per share.