Social Stocks Get Slashed: Pivotal's Brian Wieser Downgrades Google, Cuts Facebook, Twitter And Yahoo Targets
Pivotal Research's Brian Wieser made a mammoth call on social media stocks ahead of second quarter earnings. The analyst downgraded Google from Buy to Hold and set a price target ($570) nearly in line with the stock's current trading range. Wieser also trimmed his Facebook ($107 to $105), Twitter ($50 to $41) and Yahoo ($49 to $42) price targets to reflect "the higher cost of capital incorporated into equity market valuations."
Twitter is most notably affected because investors are incorporating a "disproportionate share of current period value" from future cashflow values.
Of note, Wieser also remarked that his lower Yahoo target -- of $42 compared to a previous $49 mark -- is the result of a bearish Alibaba Group Holding Ltd (NYSE: BABA) trading environment and "slightly higher risk" of a successful divestiture.
In June, Capstone analyst Max Reale said the Treasury and IRS were unlikely to approve a tax-free spinoff of Yahoo's stake in Alibaba. That failure, he added, could cost Yahoo $11 in tax expenses per share if the company decided to continue with the transaction.
More broadly, Pivotal and Wieser see three risks facing social media names going forward:
1. There's a "high degree of rivalry given an absence of barriers preventing new competition."
2. "[O]verly high and increasing capital needs to remain competitive."
3. "Government regulations and consumer pushback related to management of consumer data and respect for privacy."
High valuations are nothing new in the social media space. Morningstar reports the industry's average price-to-earnings ratio is 34. With great multiples, though, come greater growth.
Facebook has grown its revenue by nearly 50 percent each of the past three years, while Twitter's annual revenue growth over this period has surpassed 100 percent. Google's size means it sports lower sales momentum, but Wall Street still expects upside despite Pivotal's new downgrade.
TipRanks reports the average Google analyst expects 15 percent upside from here, led by Credit Suisse's Stephen Ju and Jefferies' Brian Fitzgerald. Both believe Google should trade at $700 per share.
Latest Ratings for FB
|Oct 2016||Credit Suisse||Maintains||Outperform|
|Sep 2016||JP Morgan||Maintains||Overweight|
|Sep 2016||Loop Capital||Initiates Coverage on||Buy|
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