Facebook Inc.’s surprisingly low forecast for the rest of the year is being hotly debated among Wall Street analysts.
Executives said on Facebook’s FB, -17.92% earnings call Wednesday afternoon that privacy regulations and increased interest in Stories were expected to dramatically curb revenue growth for the next few quarters, prompting shares to sell off as much as 21% in premarket trading and opened down 18%, near $178.
A close below $176.46 would mean shares have wiped out their 2018 gains.
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Instinet’s Mark Kelley downgraded Facebook’s stock to neutral from buy on Thursday, becoming one of just a handful of analysts to rate the stock at anything but a buy. Of the 47 analysts who cover Facebook’s stock, just five have the equivalent of hold ratings and two have sell ratings.
“It’s possible (and likely, in our view) that management is being overly conservative on the margin side as it looks to invest in security and product simultaneously, but there is a lot of time between now and when that conservatism might be realized, and there is also likely a considerable amount of time before WhatsApp monetization comes into focus,” he wrote.
Kelley reduced his price target to $183 from $228. There were at least 24 price target cuts overall, per FactSet’s count, though most analysts maintained their bullish ratings.
Some did so through gritted teeth. Among the most irate analysts was Stifel’s Scott Devitt, a bull on the stock, who called the company’s commentary around the impact of privacy regulations “infuriating” given past statements on the matter.
“Facebook just materially reset expectations while blaming currency, [European regulatory law on data privacy, known as] GDPR, privacy, Stories [the user-generated photo and video collections], and the kitchen sink,” he wrote. “Mark Zuckerberg has been talking and writing about fixing the business for months now and yet management is just now discussing its impact to financial results. In fact, management had previously suggested there may not be a connection between Mr. Zuckerberg’s commentary and the advertising business.”
Stifel kept his buy rating on the stock intact, writing that the bad news was likely baked into the current stock price. He lowered his price target to $202 from $242 while expressing his disappointment that the company declined to discuss these issues on its first-quarter call.
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Raymond James analyst Aaron Kessler lowered his rating on the stock to outperform from strong buy after the report, “given the increased near-term uncertainty on revenue growth, slowing user growth, and lower margin forecast.”
Kessler reduced his price target to $210 from $240.
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Evercore ISI analyst Anthony DiClemente remained optimistic about the stock overall, but he commented that some elements of the company’s story have changed. “Clearly, the narrative that Facebook is invincible and can turn a dial to ‘print whatever it wants’ is now off the table, and concerns on core Facebook engagement are likely to grow,” he said.
Like Stifel’s Devitt, Jefferies analyst Brent Thill referenced the “kitchen sink,” though he was more upbeat about the company and stock going forward. For one, Facebook’s outlook, which implied that revenue growth could fall to just over 20% by the fourth quarter, “seems extremely cautious” in Thill’s view.
“Despite deceleration, we think the foundation built through scaled quality connections and best in class tools will drive continued advertiser ROI,” he wrote. “We’ve seen multiple pullbacks in FB’s history, and each has provided a great buying opportunity.”
Thill lowered his price target to $220 from $240 but kept his buy rating in place.
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One of the biggest defenders of Facebook’s stock after earnings was BTIG analyst Rich Greenfield, who penned a note titled, “Facebook’s Death Has Been Greatly Exaggerated (by Facebook).” His view is that Facebook is “actively choosing to make less money” in the near term while it attempts to increase engagement across its various platforms.
“We firmly believe investors are overreacting to Facebook management commentary on 2018 revenue growth deceleration and first-time ever long-term margin guidance that was well below consensus expectations,” he wrote. “[It is] worth noting that Facebook has repeatedly overestimated cost growth guidance for many years running and the company stated that they have not even done their formal budgeting from 2019 yet.”
