INVESTMENT HACKS

It seems a week can’t go by without Mark Zuckerberg putting his foot in his mouth. In response to last week’s article from the New York Times, which alleged that Facebook had hired a high-power DC PR firm to manage the fallout from accusations that Russia manipulated the platform to interfere with the 2016 Federal elections, Zuckerberg said that he hadn’t known about it until he read it in the paper. It’s hardly a convincing denial.

Facebook, Inc. (FB – Research Report) has taken a series of body blows in recent months, driving the share price down from its peak of $217 to its current level of $131. At the same time, the company has retained its ‘Strong Buy’ consensus from the analysts, with 28 of the last 34 reviews recommending the stock. Five analysts hedged their bet and gave FB a ‘Hold;’ only one says to sell the stock. The $188 average price target equates to a 42% upside.

View FB Price Target & Analyst Ratings Detail

Let’s take a look at what top analysts are saying now:

Consulting with the Analysts

A Lone Bear

We’ll start with the bad news, from Pivotal Research’s Brian Wieser (Track Record & Ratings). In an October 30 statement to Barron’s magazine, Wieser suggested that “revenue deceleration is inevitable as Amazon.com (AMZN) gains ground in what has been a cooling market.” Wieser also points out “[T]he considerable financial resources Facebook is pouring into security measures to protect consumer data.” Finally, Wieser makes the astute observation that these problems have not just popped up overnight; Facebook has simply been ignoring privacy concerns for years.

In a more recent report, responding to the Times story and Zuckerberg’s bungled response, Wieser says, “The latest news does not cause us to alter tangible financial expectations for Facebook, but it does enhance risks related to revenue and expense trends as well as the potential for managerial changes. We maintain our Sell rating on Facebook with a $125 price target.” Wieser’s price target represents a 6% downside from FB’s current share price.

But FB Bulls Staying Strong

On the upside for Facebook, writing on October 29, Victor Anthony (Track Record & Ratings) of Aegis Capital gives FB a ‘Buy’ rating, with a price target of $215 – an upside potential of 60% from current levels.

Anthony points out that Facebook’s Q3 report showed marked improvements over the Q2 report, mostly meeting expectations on revenue. In regard to revenue growth, he said, “Stories monetization on core FB has proven to be challenging, but we are convinced it can work, given that the concept has already been proven in the market. WhatsApp is beginning monetization with paid messaging and ads in Stories. Messenger monetization is beginning with sponsored and inbox ads.”

Anthony has a strong record of success in recommending Facebook stock, with an average return on his ratings of 39.5%.

Meanwhile, Stifel’s Scott Devitt (Track Record & Ratings) weighed in on Nov 16 with an optimistic look at FB’s prospects. Acknowledging the recent headwinds and horrible PR, Devitt admits that the “campaign trail to rebuild credibility will be long and difficult,” but believes that the company can make management changes sufficient to allay investor concerns. He does not believe the company will jettison Zuckerberg.

Looking at the recent reports of slowing Daily Average User growth, Devitt points out that “…despite the recent user maturation in North America and Europe, the 2.5B+ global user base remains intact and hooked on the product. We reiterate our Buy rating and $202 Price Target.” Devitt’s price target is a 50% upside from current levels.

Like Anthony, Devitt has a successful record recommending Facebook, with an average return of almost 19%.

Weighing Facebook

It’s fair to say that all is not quite well with Facebook. The company is facing headwinds in the form of slowing revenue growth, slowing user acquisition rates, and ongoing concerns about data security and user privacy. At the same time, there are indications that Facebook recognizes these problems and is seeking to address them. We laugh at Zuckerberg’s foot in mouth moments as he tries to respond to each crisis, but how many of us would do any better?

In his Q3 earnings call, Zuckerberg pointed out Facebook’s expansion into other apps – Instagram, WhatsApp, and Messenger – as responses to problems in the revenue and user streams. And with 2.6 billion total users worldwide, along with $380 billion in market capitalization, Facebook certainly seems to have the resources to weather this storm.