Nearly everyone on Wall Street is bullish on Facebook Inc (NASDAQ:FB) these days, but one of the only analysts with a bearish outlook for the stock is doubling down on their “Sell” call ahead of next month’s earnings report.
In a note to clients this morning, Pivotal Research maintained its Sell rating and $140 price target on FB, which suggests a 19% downside from current levels. The firm cites a recent series of errors and flaws in the company’s ad products that have come to light over the past year for the bearish view, noting the problems will eventually have negative effects because of commercial friction and regulatory costs that follow from a lack of trust among key constituents.
Pivotal also says there are top-line growth risks that investors are not considering, including increasing awareness among marketers of all sizes that Facebook video ads have a significant viewability problem. Additionally, they note regulatory risks, such as with GDPR and ePrivacy in Europe, which could constrain available inventory for sale. The company also faces major cost increases for more human monitoring of content and ads.
Despite all these factors, Pivotal believes Facebook can still continue to thrive because its properties have such vast reach and usage, although their model anticipates slower revenue growth over the next few years vs. the Wall Street consensus outlook, along with lower margins.
Facebook Inc shares fell $0.24 (-0.14%) in premarket trading Thursday. Year-to-date, FB has gained 50.14%, versus a 15.71% rise in the benchmark S&P 500 index during the same period.