Facebook (FB) has been in the spotlight again this week after the U.K. parliament released 250 pages of seized Facebook and Mark Zuckerberg emails, which suggest that the social media giant let companies have special access to user data if they spent big on advertising. Meanwhile, Stifel analyst Scott Devitt downgraded Facebook to Hold as he believes the company has made too many enemies, including politicians and regulators, to not experience “long-term negative ramifications to its business.” This morning, his peer at Guggenheim also initiated coverage of the stock with a Neutral rating, citing challenges related to privacy, regulation, and operations monetization.
MOVING TO THE SIDELINES ON FACEBOOK: In a research note to investors yesterday, Stifel analyst Scott Devitt downgraded Facebook to Hold from Buy, with an unchanged $150 price target on shares. The analyst argued that Facebook’s management team has created “too many adversaries,” including politicians, regulators, tech leaders, consumers, and employees, to not experience long-term negative ramifications on its business. The political and regulatory blowback seems like it may lead to restrictions on how Facebook operates over time, he contended, adding that many leaders of Silicon Valley, including respected voices of Salesforce’s (CRM) Marc Benioff and Apple’s (AAPL) Tim Cook, have turned against Facebook due to differences in corporate values. Most importantly, Devitt believes consumers and some employees seem to have “grown disenchanted” with the company. Overall, the analyst thinks Facebook will struggle to return to the company that it once was or that investors expected it to be in the long run, and prefers Amazon (AMZN), Alphabet (GOOG; GOOGL), and Netflix (NFLX) as U.S.-based mega caps with similar thematic trends and more stable operating environments. Also cautious on Facebook, Guggenheim analyst Michael Morris initiated coverage of the stock this morning with a Neutral rating and $150 price target. The analyst told investors that he expects challenges related to privacy, regulation, and operations monetization to continue to weigh on investor sentiment and limit multiple expansion.
BRITISH MP RELEASES CONFIDENTIAL EMAILS: Defying a court order from a U.S. judge, British MP Damian Collins used parliamentary privilege to seize documents from the founder of U.S. app developer Six4Three and published a 250-page trove of documents from a U.S. lawsuit against the social media giant. "I believe there is considerable public interest in releasing these documents. They raise important questions about how Facebook treats users’ data, their policies for working with app developers, and how they exercise their dominant position in the social media market,” Collins said. The published report reads at the top: "Facebook have clearly entered into whitelisting agreements with certain companies, which meant that after the platform changes in 2014/15 they maintained full access to friends data. It is not clear that there was any user consent for this, nor how Facebook decided which companies should be whitelisted or not. It is clear that increasing revenues from major app developers was one of the key drivers behind the Platform 3.0 changes at Facebook. The idea of linking access to friends data to the financial value of the developers relationship with Facebook is a recurring feature of the documents." Facebook has denied any wrongdoing and said the documents were taken out of context. Defending his company’s internal discussions about making money from developers, CEO Mark Zuckerberg said Facebook never sold people's data. He added that the documents only show part of the company's discussions at the time. In a post on Facebook, the CEO said that, "I understand there is a lot of scrutiny on how we run our systems. That's healthy given the vast number of people who use our services around the world, and it is right that we are constantly asked to explain what we do. But it's also important that the coverage of what we do - including the explanation of these internal documents - doesn't misrepresent our actions or motives. […] Of course, we don't let everyone develop on our platform. I mentioned above that we blocked a lot of sketchy apps. […] We've focused on preventing abusive apps for years, and that was the main purpose of this major platform change starting in 2014. In fact, this was the change required to prevent the situation with Cambridge Analytica. While we made this change several years ago, if we had only done it a year sooner we could have prevented that situation completely."
PRICE ACTION: In morning trading, shares of Facebook have dropped over 2% to $134.87.
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