Facebook analysts are sounding off on executive turnover, privacy, and regulation

  • Facebook shares fell Monday after a handful of Wall Street analysts expressed concern over the company’s recent management changes as well as regulation- and privacy-related uncertainty.
  • Needham downgraded its rating from “buy” to “hold,” pointing in part to violent images of the New Zealand shooting uploaded to the site.
  • Bank of America Merrill Lynch lowered its price target, citing the possible “revenue impact of a more privacy centric platform.”
  • Watch Facebook trade live.

Facebook shares were under pressure Monday after Wall Street analysts sounded off about some of the most-pressing issues surrounding the beleaguered social network: violent images on the platform, privacy concerns, regulation, and management changes.

“We are concerned that regulatory, headline, and strategic pivot risks will negatively impact FB’s valuation more than investors currently believe,” Needham analyst Laura Martin wrote Monday. She cut her rating on the stock from “buy” to “hold,” citing three major risks.

Martin pointed to the negative financial impact of a “privacy-focused vision” plan that CEO Mark Zuckerberg introduced earlier this month, the looming threat of regulation, and the “horrific images uploaded to FB (like the recent New Zealand events) that are technologically difficult to block at the 100% level and which hurt FB’s brand.”

In Martin’s eyes, those elements are all underscored by a slew of important executive departures. She specifically highlighted the loss of the company’s chief product officer, chief security officer, chief legal officer, chief communications officer, news product chief, the co-founders of Instagram, and a cofounder of WhatsApp.

“We prefer to move to the sidelines until employee turnover stabilizes,” Martin said.

Another firm, Bank of America Merrill Lynch, lowered its price target from $US205 to $US187 for similar reasons.

While analysts led by Justin Post maintained their “buy” rating due to their belief that its newsfeed usage has stabilised, they’re concerned about Facebook’s privacy spending and the notable departure of chief product officer Chris Cox.

“While we continue to think estimates have been de-risked in 2019, the revenue impact of a more privacy centric platform could raise questions on three-year growth,” Post wrote.

He added: “While we think Facebook has a significant pool of talent to operate the business, and Cox’s departure has been considered for some time given long tenure, the timing raises some concern around internal dissention on Zuckerberg’s vision for Facebook.”

Even analysts who are more bullish are concerned about the financial risk a more privacy-centered vision could introduce – even if they’re seen as positive developments for consumers.

Oppenheimer analysts said Monday that they’re encouraged by the recently announced “Clear History” tool – which they say is Facebook’s way of getting in front of possible US and international user-data regulation.

But they expect its implementation to have a 7-10% impact on revenue in the near-term, assuming 15% of users regularly adopt the feature.

As far as Facebook’s recent management departures, they view WhatsApp and Instagram founders departing as factors of “those products being integrated into FB.”

“Chief Product Officer Chris Cox’s departure confirms CEO Zuckerberg is likely to pursue a more aggressive product refresh,” Oppenheimer analysts led by Jason Helfstein, who carry an “outperform” rating, told clients.

To be sure, analyst remain overwhelmingly positive on Facebook, with 40 rating the stock a “buy,” 10 saying “hold” rating, and just two suggesting “sell.”

Facebook was up 24% this year.


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