- Facebook’s problems are set to deepen in 2019, according to a note from the Pivotal Research analyst Brian Wieser.
- He argued that issues like data breaches and election meddling had only been made worse by management and that regulation had become inevitable.
- The analyst said investors remained too optimistic about Facebook.
- Wieser added that advertisers might start abandoning Facebook because of what he called its “toxicity” – and there may be trouble ahead in China.
If you thought 2018 was bad for Facebook, just wait for 2019.
That’s the verdict of the Wall Street analyst Brian Wieser, who predicts that Facebook’s problems “seem likely to worsen” over the next 12 months as it continues to grapple with a “vast” list of issues.
In a note for Pivotal Research on Monday, Wieser wrote that Facebook was tackling issues including “complicity in a genocide,” enabling political interference, and privacy scandals – all of which he said were exacerbated by the company’s response.
Wieser believes that regulation is inevitable, and indeed, Facebook itself has said it’s ready to work with global lawmakers to introduce things like federal privacy laws in the US.
Wieser wrote that the shape regulation would take was “unclear” but that “the follow-on ramifications across the company – from managerial changes at the top to an imposition of new working processes in order to avoid future problems – could be significant, and potentially more expensive than the company (or most of the investment community) anticipates.”
Wieser, who has been fairly bearish about Facebook’s prospects recently, said that the market remained too optimistic about Facebook and that it could get a nasty wake-up call. “Investors have some appreciation of Facebook’s problems at this time, although even now we think some are too positive or otherwise looking past the scale of the risks,” he said.
Facebook advertisers may be deterred by ‘toxicity’
But perhaps most ominously for Facebook, Wieser thinks advertisers are starting to take notice of the company’s woes. More than 98% of the company’s $US40.6 billion in revenue comes from advertising, and it’s second only to Google in terms of market clout. But that may soon be under threat, Wieser suggests.
“The toxicity of the company may also deter commercial partners from choosing to work with Facebook, or otherwise make terms less attractive to Facebook,” he added.
The idea that Facebook’s crises may unsettle advertisers is not new, and there is little evidence as yet that buyers are taking their money elsewhere. Facebook’s ad revenue grew 49% to $US10.1 billion in the third quarter of last year following scandals including the Cambridge Analytica data breach.
But it’s not just reputational issues that Facebook needs to worry about in terms of advertising, Wieser said. Apple shocked Wall Street last week with an earnings warning that partly blamed economic weakness in China, and US President Donald Trump’s trade war, for a drop in its revenue forecasts.
And Wieser suggested that Facebook might not be immune to trouble in China. “Facebook likely generated $US5-7bn from Chinese advertisers on its platform, whose spending trends might be impacted by economic trends in China or changes in postal regulations,” he said.
Pivotal downgraded its price target for Facebook to $US113 from $US125. Business Insider has contacted Facebook for comment.
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