High Hopes for Facebook (FB) Persist Despite Cambridge Analytica Data Scandal
After overcoming a brief bump in the road last quarter, the social media leader has rebounded and continues showing signs of future prosperity.
Early in the second quarter, Facebook (NASDAQ:FB) ran into arguably the largest conflict it has ever faced. The Cambridge Analytica data scandal, which involved the collection of personal information from 87 million different profiles, caused quite the public outcry. At first the issue was one of individual privacy, but it took a turn for the worst when word got out that politicians were using this information to help solicit votes before the 2016 election.
Daniel Ives, head of technology research at GBH Insights, refers to this incident as “the darkest chapter in Facebook’s 14-year history.” However, this same matter attributes to why Ives remains so bullish on FB stock; even while enduring its toughest circumstances ever, the company retained its normal user and advertising checks. As user engagement and advertising strength persevered throughout Facebook and continued to thrive within little brother Instagram, the FB family demonstrated plenty of promise moving forward. For these reasons, Ives maintains his Highly Attractive rating and $225 price target for the stock.
Following Q1, Facebook performed highly on its earnings test and passed its regulatory hearings with ease. As the social media giant goes through similar procedures this week to assess its Q2, Ives anticipates Facebook will have compelling results that exceed Wall Street’s expectations. While the analyst does acknowledge that “the investment profile for 2H18 might need to be ramped up further in light of increased security expenses,” he is not very concerned with the fundamental damage that could have occurred in Q2. In fact, Ives upholds the idea that even with user activity and advertising in their current post-Cambridge conditions, “less than 3% of Facebook’s revenues is potentially ‘at risk’ for 2H18/2019.”
The second quarter could have been a nightmare for FB, but the Zuckerberg & Co. persisted. Facebook, though with some difficulty, held up its end of the stick, and Instagram pulled through as well with hardly any trouble. Ives iterates that any negatives Facebook may have afflicted upon its core platform were more than evened out by Instagram’s impressive user growth and advertising success. However, the analyst also emphasizes that while no real fundamental damage arose in Q2, it must remain a focal point as Facebook “navigates the regulatory landscape both in the U.S. and Europe over the next 18 to 24 months.”
TipRanks likewise exhibits a Highly Attractive consensus on FB. Of the 29 Wall Street analysts polled in the last three months, 28 rate the stock a Buy, while only 1 issues a Sell. With 12.26% upside potential from current levels, FB’s 12-month average price target stands at $235.68.