Shares in social media giant Facebook (Nasdaq: FB) have plunged 9% since Friday’s close. Details of the 2014 Cambridge Analytica data abuse scandal continue to unfold, while management stays noticeably silent. So- the million-dollar question- is now the time to invest in FB ? Does the stock have juicy upside potential from these depressed levels or is this the beginning of the end?
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And if we turn to Facebook’s stock page on TipRanks we can immediately see a slew of recent ratings from four and five-star analysts. Go to FB’s stock page now:
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As the screenshot shows there is a clear bullish sentiment- with no recent downgrades and plenty of buy ratings. But let’s take a closer look at what the experts have to say- the good, the bad and the ugly.
The good- thank goodness Instagram!
For top Wells Fargo analyst Ken Sena the recent selloff presents a buying opportunity.
Crucially, he reminds investors not to lose sight of the areas where FB is doing very well. There are three main reasons to be bullish on FB right now:
- On valuation, he believes Facebook now represents among the best values in his coverage despite its higher growth.
- Sena sees Instagram becoming a bigger catalyst within the FB story this year, with the potential for increased ad load and advertiser importance.
- He doesn’t see the recent news and the specifics around the facts as justifying the selloff, even under the worst-case scenario, (which would be a 5.5% revenue headwind on user loss and reduced ad efficacy).
Specifically, FB’s 2018 revenue could take a hit of approximately 2% to $53.13 billion. But Sena plays this down and calls the figure ‘quite manageable’.He is sticking with his $230 price target (40% upside potential).
Indeed, FB shares should pick back up on earnings results, a reasonable response from the company and the simple passage of time according to five-star KeyBanc analyst Andy Hargreaves. He says buy at current levels and sees big upside potential of 45%.
The bad- damaging consumer trust
Top Stifel analyst is staying sidelined on FB right now. After maintaining a Buy rating on FB since its IPO, he downgraded the stock to Hold at the beginning of the year. He gives this biting assessment of FB- and explains why his initial concerns are now as relevant as ever:
“At the time of the downgrade [January 12], we didn’t believe the company was moving fast enough to address its emerging platforms issues and that it risked losing consumer trust… At the time, we thought management and its investors were being complacent about the legitimate platform issues being raised by reputable informed parties in Silicon Valley and elsewhere. Our views remain unchanged. Our rating remains Hold.”
Most worryingly, Devitt believes that the required changes to the Facebook platform would ultimately lead to lower engagement and negative monetization implications. He has a $195 price target on FB (16% upside potential).
The ugly- systematic mismanagement
Five-star Pivotal Research analyst Brian Wieser is the sole bear on FB stock. He downgraded his rating to Sell back in July on concerns that “with every passing year, digital advertising is closer to a point where the market is saturated. And unsurprisingly, he is not impressed by the latest scandal. On the contrary he sees this a new sign of “systematic mismanagement”.
While advertisers are unlikely to “suddenly change the trajectory of their spending growth on the platform,” the company may face “enhanced” risk from now on says Wieser. This could be from a regulatory perspective and in terms of what it allows third-parties to measure, which could end up frustrating advertisers. Wieser’s Sell rating comes with a $152 price target- suggesting that shares could fall another 10%.
So what now?
Overall the Street remains overwhelmingly bullish on FB’s outlook. Aside from the two analysts referred to above, only one other top analyst (BMO Capital’s Daniel Salmon) is sidelined on the stock right now. In fact this ‘Strong Buy’ stock has received 28 buy ratings from top analysts in the last three months. That’s analysts with a four or five-star rating on TipRanks. Plus, the $226 average price target of best-performing analysts translates into relatively big upside potential of 35%.
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