Facebook’s very bad 2018 could be followed by an even worse 2019 according to prominent Wall Street analyst Brian Wieser.
In a recent note for Pivotal Research covering the world’s leading internet advertising companies, Wieser, a leading expert on marketing and media, maintained a “sell” rating for Facebook, downgrading its price target to US$113 from US$125.
Weiser said the social media giant is beset by a “vast” list of problems—from enabling social and political instability in different countries, to sharing consumer data and antagonizing legislators in the U.S., the U.K and Europe—that will likely spur regulatory action and lead to both senior management changes and the implementation of potentially expensive working processes.
Advertisers could be scared off by Facebook’s ‘toxicity’: While Wieser said that advertising is the least of Facebook’s current worries, he noted that the platform is coming under increased scrutiny from advertisers. “The toxicity of the company may also deter commercial partners from choosing to work with Facebook, or otherwise make terms less attractive to Facebook, diminishing upside opportunities,” he wrote. This is being compounded by ongoing declines in consumer usage of the platform.
Still working in its favour? It’s size: With the exception of Google, Facebook is still “substantially larger” than any of its rivals, which will allow it to offset any problems for the foreseeable future, he said. However, while investors have an appreciation for Facebook’s problems, many have under-estimated the enormity of the risks posed to the company by the recent wave of negative press. “We think that over the course of the year investors will look at the Facebook more negatively than they do at present,” he wrote.
Could Amazon become the next great ad platform? Meanwhile, Wieser is more bullish on Amazon, giving it a buy rating and noting that the company’s investment in “fast-growing and high-margin” advertising activities complements its massive retail and software businesses. He described Amazon’s opportunities as “mostly unconstrained,” based on its successful track record of capitalizing on consumer and IT department spending. Pivotal research predicted that Amazon’s ad revenues could reach US$38 billion by 2023 (revenues were US$9 billion in 2018), growing faster than any of its other business units.
Snap downgraded from buy to hold: Weiser’s view on Snap remains unchanged: It can continue to grow and establish itself as a solid “niche platform.” User trends, he said, are “pretty decent,” including a resumption of growth following a period of decline that accompanied an early 2018 redesign. While the shift to programmatic selling has opened Snap up to a wider range of advertisers, continued employee churn remains a concern.
No significant headwinds for Google/Alphabet: Upgrading from a hold to a buy with a new $1,240 price target, Weiser said there is little to impede Google’s position with either advertisers or consumers. While noting that the company faces “a range of risks” similar to Facebook, he said it appears better positioned to success navigate the challenges by being better managed. “We think they have avoided some of Facebook’s problems as a result,” he wrote, while saying he doesn’t see much downside from regulatory risks, such as a European-led break-up of the company. “If such an event were to happen, we could argue that individual divisions might be unshackled and better recognized for their potential value by investors,” he wrote.
Twitter remains ‘durable’: Weiser said that Twitter’s position as a sizeable niche player is “durable” because it remains unique in the world. “The company can sustain its appeal to advertisers and content partners alike,” he wrote. Twitter is also better positioned than Facebook on public policy issues because of its more aggressive stance on safety issues. “Our guess is that if Twitter better policed the content on its platform—even at risk of claims of political bias —it would probably make itself more appealing to advertisers independent of what might happen to user and usage trends,” he wrote.