True, the analyst acknowledges a “still-dominant ‘Bull’ view” circulating on the Street when it comes to the social media titan’s monster and its user base of over 2 billion users; high ad product performance metrics with meaningful upside potential; ad market share prospects; and a standout management team.
However, the analyst believes the size of its core platform is less important when looking at consumption, which is “weak.” Is a golden acquisition like Instagram as big as investors wager? Does FB’s ad performance translate to the biggest returns? Wieser says no and no here, anticipating fines and risks of regulation haunting ahead.
As such, the analyst stands by his bearish perspective, reiterating a Sell rating on FB with a $138 price target, which implies a 17% downside from current levels. (To watch Wieser’s track record, click here)
While Wieser admits, “The scale of the core platform is probably Facebook’s most valuable attribute,” that said, he adds on a negative note: “these figures – and growth in these figures – matters less than how much of an advantage Facebook has in usage over other media owners in the individual countries it operates in.” Meanwhile, the analyst notes Instagram merely has hooks in 10% of the volume of usage on the domestic front for adults 18 and up- not as “meaningful” as the Street might think.
Amid downside following the Cambridge Analytica data privacy fiasco, the analyst sees privacy as a global issue now impacting all publishers of web content- and a concern not to be ignored.
Regarding FB’s ad power potential, the analyst shares his two cents: “To the idea that Facebook ads are perceived as effective, […] advertising is allocated to different media types and media owners based around what provides the best returns […] To the extent that performance on Facebook is assessed with regular frequency – and for most advertisers, we don’t think it is in the ways that investors think it is – ROI helps to justify a budget allocation, and doesn’t necessarily directly drive those allocations.”
When it comes to capturing TV budgets, Wieser notes “limited success” here from FB on a front that he deems the most crucial, as advertisers spend a lot of money aiming to correlate brands with TV-based content.
Taxes are another area where our view diverges from consensus, evidently. It seems highly unlikely that all of the company’s scrutiny in Europe will allow the company to continue to effectively avoid much tax in the region.
Ultimately, “While we understand the ‘cult of the founder’ that pervades Silicon Valley and public market investors’ positive take on any company that can become as large as Facebook is while growing as fast as it has, we think that external signals are increasingly indicating that the company has not managed its growth as well as most of us thought, opening it up to ongoing risks,” concludes the analyst.
TipRanks showcases the social media titan has a robust bullish backing on Wall Street. Out of 34 analysts polled in the last 3 months, 31 are bullish on FB stock, 2 remain sidelined, while 1 (Wieser) is bearish on the stock. With a return potential of nearly 32%, the stock’s consensus target price stands at $219.31.