Facebook, Inc. (Nasdaq: FB) stock finally found some support on Monday after tumbling nearly 15 percent in a week on fears about the fallout from the company’s Cambridge Analytica data scandal. Investors are concerned that data security issues will prompt Facebook’s advertising partners to take their business elsewhere, but losing advertisers may not end up being a problem for Facebook.
According to Canaccord Genuity analyst Michael Graham, even if Facebook advertisers leave the platform coming weeks, they don’t really have anywhere comparable to go.
[See: 7 of the Best Stocks to Buy for 2018.]
“We are reminded of a few occasions in the past when some notably large advertisers boycotted the property (and subsequently returned),” Graham says. “Advertisers may try to gain a step-function advantage in negotiations with a temporarily-weakened FB, but we doubt they will shun the platform in a sustained way if it still works in connecting with customers.”
As of January, Facebook had more than 2.1 billion active users. Its wholly-owned WhatsApp and Facebook Messenger had 1.3 billion active users each and its Instagram platform had 800 million active users.
Alphabet ( GOOG, GOOGL), the other dominant force in online advertising, faced a similar backlash in early 2017 when 5 percent of YouTube’s top advertisers left the platform due to ads being posted next to objectionable content. In the most recent quarter, however, Alphabet reported a 21 percent increase in ad revenue from a year ago.
Graham says Facebook investors can expect a similar scenario to play out and predicts the latest round of negative headlines and advertiser outcries will ultimately have “minimal” impact on Facebook’s business.
Even in a worst-case scenario in which Facebook revenue growth slows from the mid-40-percent range to just 20 percent in 2018, Graham says Facebook’s price-earnings ratio would still be roughly in line with its growth rate, suggesting further downside in the stock is limited.
[See: 7 of the Best Tech Stocks to Buy for 2018.]
GBH Insights head of technology research Daniel Ives says Facebook’s share price will likely remain depressed until the data fiasco has passed, but investors should feel confident buying the dip.
“We ultimately believe Facebook will emerge from this crisis with minimal regulatory changes and limited financial damage to its user base and advertising kingdom,” Ives said.
Canaccord Genuity has a “buy” rating and $240 price target for Facebook. GBH Insights has a “highly attractive” rating and $225 rating for FB stock.
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Facebook, Inc. (FB) Advertisers Aren’t Going Anywhere originally appeared on usnews.com
