Facebook investors got a 'wake-up call' last year, but one of Wall Street's biggest worries isn't a problem, analyst says

Christophe Morin/IP3/Getty ImagesMark Zuckerberg, chief executive officer and founder of Facebook Inc. attends the Viva Tech start-up and technology gathering at Parc des Expositions Porte de Versailles on May 24, 2018 in Paris, France.
  • Facebook was under pressure in the second half of 2018, falling 34% from its record high set on July 25.
  • The social-media company was rocked by the Cambridge Analytica data scandal in March, and got hard hit after posting brutal earnings in July.
  • Public scrutiny over Facebook’s data protection is unlikely to stall its long-term progress as users are still sticking to the community, according to Rob Sanderson, managing director at MKM Partners.
  • Sanderson added that US regulators won’t be too harsh on Facebook for fear of hurting innovation.
  • Watch Facebook trade live.

What Facebook experienced in the past year was just a “wake-up call,” and the company’s long-term fundamentals are still solid, an analyst says.

“Scrutiny over data protection is warranted, but unlikely to stall progress,” Rob Sanderson, managing director at MKM Partners said in a note out on Monday.

2018 was a year to forget for Facebook investors. In March, Facebook was linked to the Cambridge Analytica data scandal surrounding the 2016 presidential election, causing it to shed $US50 billion of market value in two days.

The stock recovered, but plunged more than 20% in response to Facebook announcing quarterly revenue that fell short of Wall Street estimates. Facebook warned investors its top-line growth rates would decline by “high single-digit” percentages in the coming quarter as it ramped up its self-declared war on safety and security. Shares are down 34% from their record high set on July 25.

The data scandal and brutal earnings prompted Wall Street to sound the alarm the stock. Facebook is “not as in control of its business as it needs to be,” Brian Wieser, a long-time Facebook bear at Pivotal Research Group said in October.

But Sanderson said that Wall Street may have ignored one key fact – Facebook’ users are still sticking to the platform.

“Users may be spending less time, but Facebook is still firmly entrenched as a daily habit,” Sanderson said. “We expect the substantial majority (nearly all) users will opt-in to sharing of personal data, usage and other data in exchange for better services, so long as they are free of charge.”

By Sanderson’s calculation, Facebook’s daily US users equate to about one-ninth of the five largest US television networks. “Facebook is unique in its scale and reach, like television that continued to grow long past its peak in audience,” he said, adding that Facebook’s video-enriched Stories and Watch features have potential to reaccelerate engagement growth across the Facebook community.

Sanderson added that US regulators won’t be too harsh on Facebook and other US tech companies for fear of hurting innovation.
“Global competitiveness will be a consideration for regulators and point to the pace of innovation on Chinese platforms that leverage troves of consumer data to create highly innovative and valuable services,” he said.
Sanderson has a “buy” rating and $US190 price target – 30% above where shares were trading Monday.
Facebook was down 18% in the past year.

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