Investors are 'looking for reasons to believe' in Facebook --  and overlooking a big reason to worry

Photo: Chris Jackson/Getty Images.

  • FacebookCEO Mark Zuckerberg’s comments on the Cambridge Analytica data scandal don’t indicate anything positive about the company, according to Pivotal Research’s Brian Wieser.
  • Zuckerberg said the data scandal hasn’t caused a meaningful amount of users to leave the platform, but Wieser says the scandal wouldn’t cause that anyway.
  • Instead, he thinks Facebook’s problem is that the digital advertising market is at a plateau.
  • Wieser’s price target is $US138 a share, below the current $US158 stock price, making him one of the biggest Facebook bears on Wall Street.

Investors who think the worst is over for Facebook aren’t thinking about things the right way, according to one of the company’s biggest bears on Wall Street.

Facebook shares are up almost 3% since CEO Mark Zuckerberg told reporters he doesn’t “think there has been any meaningful impact “ from the Cambridge Analytica data scandal on user growth.

“Investors, as of right, now are looking for reasons to believe it’s business as usual,” Pivotal Research’s Brian Wieser told Business Insider. “There are so many people who are on Facebook who are not very knowledgeable about the industry,” he said. “They will respond to superficial comments.” Investors will hear from Zuckerberg again Tuesday when he appears before US politicians to explain Facebook’s mishandling of user data.

Wieser does not discount Zuckerberg’s comment but did say that “it was never that likely that many people would delete their accounts” in response to the data scandal. He believes the bigger issue is how much time people are spending on the platform, and how many commercial impressions they produce.

The bigger issue, Weiser thinks, is that there isn’t much more room for growth in the global digital advertising market.

Facebook had a strong 2017, but that “just means they got there a little ahead of time,” he said, adding that the size of the digital ad market remained unchanged.

“The stock implicitly assumes that there is a bigger market, that they can take share from other marketing spends, that the performance of digital advertising has infinite budgets,” said Weiser, who has a $US138 per share price target on Facebook, about 37% below the Wall Street consensus of $US219. “Those things are not true.”

“It’s hard to imagine this doesn’t get a lot worse for them.”

Facebook is down 12% this year.

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