A report from analysts at MoffettNathanson (MN) questions to what extent Facebook has been hurt by recent service interruptions, a negative report in the Wall Street Journal, and highly critical congressional whistle-blower testimony from Frances Haugen. The consequences were something of a downhill slide for its share price (ranging down 12.34 per cent, or $46 to $329 in the past three weeks).
Facebook, according to Haugen, has itself recognised its failings in terms of younger users especially those on its Instagram site.
MN have tried to separate the short-term negativity into a longer view while evaluating the potential impact of these revelations on regulatory action, safety & security spending, user growth and Facebook’s valuation.
MN reminds clients that this is not the first time Facebook has had to counter negative challenges (Cambridge Analytica in March 2018, an FTC probe, a House investigation in 2019 which led to an FTC $5 billion fine and advertiser boycott threat in 2020).
MN state that even if user engagement slows on Facebook and other Internet platforms, the impact to ad revenues is less clear as higher pricing may account for lower impressions (as the market saw from traditional TV and Facebook’s own history). MN suggests that Facebook will likely now invest in more safety and security (and that Facebook claims 40,000 staff are currently working on these matters). “We believe other platforms wouldn’t be able to compete on this potential regulatory requirement”.
More risky, says MN, is the drift away from Facebook towards rivals such as TikTok which is growing faster than Instagram.
MN says further improvements by Facebook to its systems and protections will help the company, and the Internet in general.
The analysts rate Facebook a ‘BUY’ with a target price of $420.
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