In addition to providing insight into the outlook of Facebook stock, investors’ opinions can provide perspective on the potential future of the company and fate of its founder, Mark Zuckerberg. Facebook’s problems and investors' reactions to those issues can also be a warning of potential pitfalls for other social media platforms.
Like many high-tech companies, Facebook stock has generated stellar returns, reaching a high for the year of $218 in late July. Since then, it’s tumbled approximately 31%. The S&P 500, by comparison, generated a -3% return, not including dividends, during the same time period.
Among other issues, investors have grown weary of Facebook user defections. In September, Pew Research released research that found 42% of Facebook users had taken a break from viewing the platform for several weeks or longer and that 26% of users had deleted the Facebook app from their phones.
Other users had said they had changed their Facebook settings to better protect their online privacy. The survey was conducted in late May and early June following news that Cambridge Analytica had collected data on tens of millions of Facebook users without notifying the individuals.
More recently, a study by investment bank Piper Jaffray found that only 36% of 8,600 teens surveyed use Facebook, compared to 60% of surveyed teens in the spring of 2016.
The Cambridge Analytica issue is just one of many challenges that Facebook has been facing. It has come under widespread criticism for allowing Russian interference with the last presidential election and for not doing enough to weed out fake news.
Facebook has also been criticized for providing advertisers with inaccurate data regarding video viewership. To make matters worse, Facebook disclosed last month that approximately 50 million user accounts had been hacked. Facebook then said data from 87 million accounts had been hacked.
For Brian Wieser, who is an analyst with equity research shop Pivotal Research Group, the hack is another symptom of Facebook being poorly managed, according to a recent article from USA Today.
Facebook’s strong popularity and profitability have distracted investors from concerns about the company’s previous mistakes. Wieser maintains that the Facebook board needs to aggressively determine if the problems are Mark Zuckerberg’s responsibility or if they can be attributed to Sheryl Sandberg, the company’s chief operations officer. Some investors have already concluded that Zuckerberg’s responsibilities should be curtailed.
Trillium Asset Management, which has $11 million invested in the company, has teamed up with other Facebook shareholders, including Illinois State Treasurer Michael Frerichs, Rhode Island State Treasurer Seth Magaziner, Pennsylvania Treasurer Joe Torsella, and New York City Comptroller Scott Stringer, to demand that that Zuckerberg, surrender his chairman of the board responsibilities, reports Fortune. Zuckerberg is currently both chairman and chief executive officer.
The investors claim the change would make Zuckerberg more accountable to the board. Yet, other factors could support the performance of Facebook stock, maintains Jim Cramer, host of CNBC’s Mad Money show on investing.
He maintains that mutual funds may be selling stocks of companies that could be harmed by increasing trade tension between the U.S. and China. Furthermore, he says those funds are buying Facebook shares and stocks of other companies that have no exposure to the Tiger economy. Those companies may be somewhat insulated from the impact of a trade war.
Most analysts, meanwhile, are still optimistic about Facebook. Indeed, the sell recommendation by Pivotal Research Group’s Wieser could be viewed as an outlier.
Among analysts followed by TipRanks, 33 rate Facebook as a buy and six are fence sitters, according to Smart Analyst.
Ken Kam, founder of Marketocracy, Inc., meanwhile, says the recent decline in Facebook stock has resulted in the company having a valuation that is similar to an average company, reports Forbes. He maintains Facebook is likely to grow at a faster rate than an average company, so its stock is likely to outperform.
