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Jan 7, 2019

Facebook's biggest bear says problems 'likely to worsen' in 2019

The Facebook Inc. application is displayed for a photograph on an Apple Inc. iPhone in Washington, D.C., U.S., on Wednesday, March 21, 2018. Facebook is struggling to respond to growing demands from Washington to explain how the personal data of millions of its users could be exploited by a consulting firm that helped Donald Trump win the presidency.

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Facebook Inc. is likely to see another rough year in 2019 as “many of the company’s managerial choices in its early years continue to play out negatively,” according to Pivotal Research Group, which slashed its price target on the stock.

The target was lowered to US$113 from US$125, which represents downside potential of about 18 per cent from the company’s Monday close of US$138.05. The new target is also the lowest on the Street.

Analyst Brian Wieser affirmed his sell rating, saying the social media company’s problems “seem likely to worsen from here (which is saying something considering the year it had in 2018).”

Shares of Facebook are down more than 36 per cent from a record hit in July. The stock rose less than 0.1 per cent on Monday.

Facebook has been grappling with a number of issues over the past several months, including a data breach, privacy concerns, and the prospect of more regulation, which Pivotal wrote “seems inevitable,” though the form it could take was unclear.

“The list of problems the company is grappling with is vast, including complicity in a genocide, enabling social and political instability in different countries around the world, the unwitting sharing of consumer data and antagonized legislators in the US, the UK, Europe and beyond,” Wieser wrote.

While investors have “some appreciation” of the issues Facebook is dealing with, “some are too positive or otherwise looking past the scale of the risks the company faces in terms of higher costs and ongoing efforts by governments to constrain the company.” In a note to clients, he wrote that “investors will look at the FB more negatively than they do at present” over the course of the year.

Also on Monday, analysts at Baird wrote that Facebook was seeing stabilizing engagement trends, with particular strength in Instagram.

“While we were more cautious through 2018, we are incrementally positive as trust and usage likely stabilize/improve this year,” analyst Colin Sebastian wrote to clients. He has an outperform rating and US$195 price target on the stock.

Currently, 41 analysts view Facebook as a buy, while eight rate it a hold and four label it a sell. The average price target is US$187, which implies upside of roughly 35 per cent.