Analyst Downgrades Facebook To Sell, Sees Risks Ahead

Facebook Inc FB shares, which gained a little over 4 percent in two sessions and moved into record territory following the release of its second-quarter results on July 26, came in for some punishment on Monday.

Pivotal Research Group downgraded Facebook from Hold to Sell and maintained its year-end price target of $140.

Analyst Brian Wieser attributed the action to the stock's remarkable runup this year and the current market price remaining about 19 percent over his target price as of last Friday.

The analyst highlighted several risks that make him wary about Facebook.

The analyst sees abouding macroeconomic uncertainties, especially concerning public policy issues in the U.S. and many countries around the world.

See Also: Facebook's Revenue Growth Rate 50x That Of Twitter

Potential EC Clamp Down

Additionally, the analyst sees the likelihood of regulatory clamp down on Facebook, as it gets bigger. Pointing to European Commission's ruling on Alphabet Inc GOOGL shopping, the analyst looked ahead to EC's soon-to-be-announced consumer privacy policy rules, which would be implemented in May 2018.

The analyst referred to expectations from some quarters that the rules could be negative for both Google and Facebook due to the limitations the policy would impose on how both companies collect consumer data and use them for ad targeting.

Other Risks

• Viewability remaining a concern for Facebook
• Digital advertising spending inching closer to saturation
• Lower margins associated with premium video despite it aiding growth
• Companies such as Procter & Gamble Co PG indicated that they aren't happy with spending on digital forums, as their ads are not being placed according to their specification and standards. Pivotal estimates that large advertisers account for around 30 percent of Facebook's revenues. Any cut by these clientele would impact revenues.

Concluding, Pivotal said, "if anything, risks have become more pronounced since our peak YE2017 price target of $176, which was issued in early November of 2016 and subsequently reduced."

"We don't think that investors are fully accounting for those risks."