Buy the dip in Facebook as shares of the social media giant are set to rise as much as 35%, JPMorgan says

Facebook CEO Mark Zuckerberg
Facebook CEO Mark Zuckerberg. Erin Scott/Reuters
  • JPMorgan says investors should buy shares of Facebook as the slump from recent highs.
  • The stock has been pressured by negative news flow ranging from advertising issues to a whistleblower’s leaking of internal documents.
  • JPMorgan sees the stock rising to $US450 ($AU619), a 35% increase from current prices.
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Facebook shares have taken a hit recently from investors worried about advertising hurdles from Apple’s privacy push, among other big issues, but JPMorgan sees the company’s stock rising as much as 35% from current levels and recommends investors buy into the pullback.

The investment bank in a Thursday note said Facebook is in the midst of a “negative news flow” that’s led the stock down 13% from its most recent high, set at $US384.33 ($AU529) on Sept. 1.

Late last month, Facebook said in its business blog it had underreported advertising-related performance stemming from privacy changes on Apple iOS mobile operating system. Clients had told Facebook that their ad costs have increased and that it was becoming more difficult for them to measure the impact of their campaigns on its platform.

“But FB’s ad platform consisting of more than 10M advertisers is extremely resilient & although some marketers may want to shift spend away or reduce bid levels at certain times, we believe there are plenty of others who are eager to capture that inventory,” wrote JPMorgan analyst Doug Anmuth in a note recommending investors buy the dip in the share price.

The platform’s resilience “was evident during the worst COVID-19 days in 2020 and also during the July 2020 brand advertiser boycott,” he said. JPMorgan sees Facebook’s stock rising to its December 2022 price target of $US450 ($AU619).00, which would mark a 35% increase from Wednesday’s finish.

Facebook shares have also been under pressure since The Wall Street Journal last month published a series of articles based on a review of Facebook’s internal documents about harmful effects from its products. Whistleblower Frances Haugen, who leaked documents showing Facebook was aware its Instagram app was harmful to the mental health of teenage girls, testified before a Senate committee on Tuesday about the social media giant’s business practices.

JPMorgan acknowledged negative news flow has intensified and has created headline risk for Facebook.

“But FB has managed through multiple periods of negativity in the past & shares are down 13% from their recent highs,” compared with a roughly 3% decline in the S&P 500 from its highs, said Anmuth.

“Additionally, FB continues to call for a set of more standard rules for the internet from Congress, though we do not expect that near-term,” the bank said. “It is possible, however, that FB could continue to tweak its algorithms to improve the platform, as it did a few years ago in shifting more toward friends & family.”

Third-quarter financial results from Facebook will be released after trading closes on October 25.