Despite Privacy Missteps, Analysts Still Like Facebook

Government regulators and the public might be giving Facebook, Inc. FB fewer likes. But the company’s latest public relations troubles are no reason to unfriend the stock, analysts say.

The beleaguered social media giant was hit with a new wave of negative publicity this week over how much user data it shares with third-party companies. 

But the latest bad PR will die down, and even if the company ends up paying fines, it won’t have a notable long-term impact on the stock price, according to one analyst.

Another said the downside could actually present a good buying opportunity — that all the negative reactions to its data sharing could lead to a subscription-based service that could be good for investors. 

BofA: Troubles Won't Last 

The company hit the news again this week when The New York Times reported Facebook gave companies, including Amazon.com, Inc. AMZN, Netflix, Inc. NFLX and Spotify Technology S.A. SPOT more access to Facebook user data than was previously disclosed.

Bank of America Merrill Lynch analyst Justin Post reiterated a Buy rating on Facebok with a $190 price objective.

The revelations could contribute to Facebook’s short-term problems, Post said in a note. 

“While FB’s data policies do not appear to have aided revenues, ongoing publicity is a potential negative for users and advertisers."

Negative publicity is nothing new for Facebook, which has been under heavy scrutiny from the public, press and Congress for the better part of the year, the analyst said.

Facebook's long-term prospects could be good  if core use of the site grows following its effort last year to improve the news feed, Post said.

Other positive factors the analyst identified include Facebook’s efforts to improve monetization of content over various platforms, its growing use of video and e-commerce efforts.

Height: Cambridge Analytica Litigation Could Trigger Further Lawsuits

Facebook faced a new legal challenge this week when the District of Columbia sued the company in connection with the way in which it provided data to contractor Cambridge Analytica in the run-up to the 2016 election. Cambridge Analytica is alleged to have improperly used Facebook users’ data to influence the election in favor of then-GOP presidential candidate Donald Trump. 

D.C. Attorney General Karl Racine alleges Facebook failed to tell customers about how it was using and sharing their data, similar to what the New York Times reported.

If the lawsuit is successful, others could be filed, Height Securities analyst Chase White said in a note.

“Depending on how the suit fares in the D.C. court, other states may be prompted to attempt the same type of intervention under local laws," the analyst said. 

Height does not expect a material resolution to the matter before the fourth quarter of 2019. 

Feinseth: Data Issues Could Lead To Subscription Model

The turmoil over data privacy could lead Facebook to explore a new model: a paid subscription service. And that could be a buying opportunity, Tigress Financial Chief Investment fficer Ivan Feinseth said in a note. 

“The problem continues to be the fact that Facebook offers a social media platform to almost 2.3 billion members to use for free in exchange for users’ data to be provided to advertisers to better target potential customers,” he said. “A paid service allowing users to opt out of data access may be one of the solutions to its privacy issues, which could be a significant revenue generator.”

Any weakness in the stock is a buying opportunity, Feinseth said. 

Related Links: 

Facebook Has Another Data Privacy Problem, This Time Involving Amazon, Netflix And More

Munster: There's Something 'Fundamentally Wrong' With Facebook

Posted In: Bank of America Merrill LynchJustin PostAnalyst ColorPrice TargetReiterationTop StoriesAnalyst Ratings

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