Bengaluru — DZ Bank was the third Wall Street brokerage this week to make a rare cut in price targets for Facebook on Wednesday as the social network’s share price slid for a third day in response to a row over data use.
The brokerage cut its target for the California-based firm by $20 to $210, still far above the current share price of $165 but adding to signs that Wall Street analysts are waking up to the risks to the company.
A 1.6% fall in Facebook shares in premarket trading brought the losses in the company’s market value this week to $57bn, or 10.5% — a shock for a company that has risen more than 550% in value in the past five years.
In a secretly recorded video broadcast on Tuesday, the suspended CEO of Cambridge Analytica said his UK-based political consultancy’s online campaign had played a decisive role in US President Donald Trump’s 2016 election victory.
Alexander Nix’s comments were potentially a further problem for Facebook as it faces US and European scrutiny of Cambridge’s improper use of 50-million Facebook users’ personal data to target voters.
"We anticipate that the stock will be subject to further headline risk in the coming weeks as senior management is summoned to DC for hearings with law makers," Credit Suisse analyst Stephen Ju wrote in a note.
Many analysts have now raised concerns that the incident will have a negative effect on user engagement with Facebook, potentially eating into its clout with advertisers.
There are mixed views, however, on whether an aggressive regulatory response will materialise. So far, US and European MPs have demanded an explanation of how Cambridge gained access to user data in 2014 and why Facebook failed to inform its users, raising broader industry questions about consumer privacy.
Cowen and Co analyst Paul Gallant said the US congress was unlikely to act on the issue. Despite allegations of Russian interference, a bill requiring internet companies to disclose foreign buyers of political advertising was going nowhere, he said. "We don’t expect congress to enact online privacy legislation anytime soon."
On Tuesday, brokerage Evercore cut its target by $20 to $205. Macquarie Research trimmed its target by $5 to $200, the first reduction since October 2012, five months after Facebook’s stock market launch.
"Investors now have to consider whether or not the company will conclude that it has grown in a manner that has proven to be untenable or whether it needs to significantly improve how it is managed," said Pivotal Research Group analyst Brian Wieser.
Morgan Stanley analysts said they expected Facebook to bring changes to how data were made available to app developers and third parties, adding it could have a negative effect on Facebook Audience Network’s ability to scale, although minimal.
Reuters
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