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Nomura Downgrades Facebook, Says Stock's Negatives Outweigh Positives

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Nomura Downgrades Facebook, Says Stock's Negatives Outweigh Positives
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Facebook, Inc. (NASDAQ: FB)'s "underwhelming" second-quarter results prompted Nomura to downgrade the stock Thursday. 

The Analyst

Nomura Instinet's Mark Kelley downgraded Facebook from Buy to Neutral with a price target lowered from $228 to $183.

The Thesis

Facebook's earnings report held multiple negative readouts, Kelley said in the downgrade note. (See the analyst's track record here.) 

They include:

  • Net user adds haven't been this light since the third quarter of 2014. 
  • The "biggest disappointment" in user adds comes from the Asia-Pacific region, with just 21 million net new users.
  • User adds in U.S. and Canada were flat.
  • Facebook's guidance and outlook implies the Street's estimates need to be "drastically cut."
  • Even if the guidance is conservative, there is a "lot of time between now and when that conservatism might be realized."
  • Monetization of platforms like WhatsApp is unlikely to start for a "considerable amount of time."

The quarter did have several positive factors, Kelley said:

  • Investments in privacy and security are necessary.
  • Facebook's disclosure of 2.5 billion people using at least one platform is encouraging.
  • The companyis not ignoring new initiatives and is testing payments on WhatsApp in India. 

Price Action

Facebook shares were trading down 18.5 percent to $177.30 at the time of publication Thursday.

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Latest Ratings for FB

DateFirmActionFromTo
Nov 2018ArgusMaintainsBuyBuy
Oct 2018Morgan StanleyMaintainsOverweightOverweight
Oct 2018Raymond JamesMaintainsOutperformOutperform

View More Analyst Ratings for FB
View the Latest Analyst Ratings

Posted-In: Mark Kelley monetizationAnalyst Color Earnings News Downgrades Price Target Analyst Ratings Best of Benzinga

 

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