Out on Wall Street, sentiment can shift at the drop of a hat. Facebook’s (FB) closing price on June 23 was 242.24 per share, representing an all-time high. While less than two weeks have passed, sentiment has soured considerably in the meantime.
The “Stop Hate For Profit” campaign calls for a boycott on ad spend on the platform, due to Zuckerberg's limp reaction to hate speech and other harmful content. A growing list of companies have joined the fray (currently over 400), and the question to ask now is how much damage will the boycott have, on not only the company’s balance sheet, but also on a less tangible asset – its brand.
“Brands embed a brand promise and imply consumer trust. FB and Instagram's brands are under attack by brand advertisers, who are the subset of revenue that value brands most,” said Needham analyst Laura Martin.
The 5-star analyst believes the damage to Facebook’s brand could wipe off a big chunk of its EV (enterprise value). This is based on a Forbes calculation that Facebook’s brand value (including Instagram and WhatsApp) totaled $90 million at the end of 2019.
“By implication,” Martin said, “The valuation at risk by FB's falling brand value represents about 15% of its total EV today.”
The problem is further compounded by COVID-19’s devastating impact on SMBs (small medium businesses), which make up the bulk of Facebook’s 7 million active advertisers. Martin estimates many will not be able to withstand the pandemic’s ruinous effect, and might never open again. Even among those that do manage to make it through COVID-19, many are likely to slash ad budgets. Facebook’s reliance on well-known brands advertising on the platform is also problematic, in Martin’s opinion.
“It's not good for shareholders that FB is irritating its brand advertisers, who are the ad spenders most likely to survive COVID-19,” the analyst warned.
As a result, Martin reduced her 2Q20 Facebook revenue estimate. The analyst now expects revenue of $16.625 billion, which reflects a 2% year-over-year drop and is 5% lower than her previous forecast.
Additionally, Martin reiterated a Hold rating on Facebook without specifying a price target. (To watch Martin’s track record, click here)
The Needham analyst is currently among the minority on Wall Street. Of the 32 analysts that have posted a review over the last three months, 4 recommend to Hold, while all 28 others say Buy. With an average price target of $249.07, the upside potential comes in at 7%. (See Facebook stock analysis on TipRanks)
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