A whirlwind of issues for Facebook (FB) are brewing this holiday season. While most Americans were spending the week picking up turkeys and stuffing, Facebook stock was falling around 5%.
Analyst Evercore ISI’s Anthony Diclemente has been taking questions and concerns from fearful investors. They want to know if the negative press (security breaches, Cambridge Analytica, etc.) has affected Facebook’s core business fundamentals and ultimately its stock. Additionally, some departures of high-profile executives have investors worried about the efficiency within the company.
DiClemente says in response he’s been searching for the answers: “… we’ve been reaching out to digital marketing agency buyers, we have attempted to quantify potential downside scenarios, we are trimming our estimates, and we are taking our Target Price lower, reflecting ongoing headwinds,” DiClemente said.
The analyst references a New York Times piece, which raised issues about how the social media company has been communicating with their staff. The article questioned if management acted appropriately in response to investigations about election interference and also if management employed overly aggressive PR tactics to defend itself from critics. DiClemente reminds that the NYT and WaPo, both organizations covering Facebook, are also organizations in competition with Facebook for advertising dollars. The question is: how will this affect how users engage with the platform. The Wall Street Journal also suggests there’s friction at the top. The article suggests CEO Mark Zuckerberg “blamed” top executive Sheryl Sandberg and her team for the Cambridge Analytica security breach.
DiClemente explains why Sandberg matters to investors: “…the article goes on to say that Mr. Zuckerberg is pleased with recent improvements in communications. That said, any report suggesting an increased likelihood of Ms. Sandberg’s departure is a likely negative among investors, who see her presence as critical to the continued success of the company.”
The analyst says his conversations with members of the ad industry, in tandem with research published by AdAge, show there’s little evidence of an immediate pullback in ad dollars, so long as user metrics and ad performances stay the same. DiClemente says the data doesn’t, however, eliminate all his worries.
“… our concern is that in an environment of slowing growth, FB’s inability to put to rest these controversies could prove a liability in budget allocation decisions next year. In our analysis, we find that for every 100bps reduction in US revenue growth next year, there is an 80bps impact to EBIT and EPS.”
In turn, DiClemente moves his estimates lower as he “incorporates further conservatism,” but reiterates his rating of Outperform for the stock. The analyst lowers his target price to $175 from $180, as well as his EPS estimate of $8.41, which is down from $8.45. (To watch DiClemente’s track record, click here)
The Street, however, considers Facebook a Strong Buy. It doesn’t seem like the bad press is affecting how those bulls feel… TipRanks found out of 37 analysts reviewing this stock, 31 are bullish, five are sidelined and 1 is bearish. The consensus price target stands at $189.97, which shows an upside 44%. (See FB’s price targets and analyst ratings on TipRanks)