Facebook, Inc. (Nasdaq: FB) is fighting to save its reputation following the Cambridge Analytica data scandal that weighed heaviliy on FB stock last week, but a new survey from Baird suggests the company’s user engagement may have already taken a hit from the scandal.
“As a follow-up to our January social media survey that foreshadowed Facebook’s reported Q4 decline in [North American daily active users], our latest survey indicates some additional decline in usage/engagement, particularly among younger demographics, coinciding with recent headlines around data privacy,” Baird analyst Colin Sebastian says.
[See: 7 of the Best Stocks to Buy for 2018.]
Much more importantly for Facebook investors, Sebastian says there is evidence that some advertisers may dial back ad spending on Facebook as a result of the data incident. Fortunately, Sebastian says this trend will likely only be a short-term phenomenon.
“We expect that any advertiser pullback will be short-lived, as there are few channels available that can match Facebook’s return on ad spend,” Sebastian says.
Over the weekend, Facebook CEO Mark Zuckerberg took out full-page ads in a number of major newspapers in the U.S. and U.K. apologizing to Facebook users for the company’s Cambridge Analytica data scandal.
In addition to a potential drop-off in user engagement, Facebook also faces the possibility of a regulatory crackdown on data.
GBH Insights head of technology research Daniel Ives says the prospect of new regulation could weigh on Facebook stock in the near term.
“This will remain a lingering risk around the name over the next year as Facebook works out with regulators new tighter procedures, advertising content transparency front and center, and policy changes it might need to adopt in light of this latest data issue and public backlash,” Ives says.
“While we estimate roughly $5 billion of annual advertising revenues is at risk in a worst-case/moderately heightened regulatory environment, this would still represent 10 percent of overall revenues for 2018 and is not a game-changing thesis changer to our bullish view of Facebook,” he says.
[See: 7 of the Best Tech Stocks to Buy for 2018.]
With Facebook stock already down 14.8 percent in the past two weeks, Sebastian also says modest headwinds in user growth and engagement have already been priced into the stock.
GBH Insights has a “highly attractive” rating and $225 price target for Facebook. Baird has an “outperform” rating and $210 target for FB stock.
More from U.S. News
6 Things to Know About Mark Zuckerberg’s Manifesto
8 Steps for Investing a Tax Refund
8 of the Most Incredible Investments of the 21st Century
Facebook, Inc. (FB) User Engagement Falls After Data Scandal originally appeared on usnews.com
