Facebook (FB) Stock Drops 4.5%, But Analysts Still See Upside Potential

Francisco Memoria

Facebook (NASDAQ:FB) is down more than 4.5% today as investors are dropping the social media giant’s stock after it disclosed a sump in advertisement revenue amid the ongoing economic deceleration.

The social media giant is, at press time, trading at about $170 after losing 4.5% of its value after the opening bell. So far this year it’s stock price dropped 13.16%. In comparison, the S&P 500 index is down 3.02% today, and about 13.34% year-to-date.

Facebook stock price chartSource: Google

Despite the social media giant’s poor price performance, analysts appear to still see upside potential for it. Lloyd Walmsley, an analyst at the Deutsche Bank (ETR:DBK) cut Facebook’s stock price target to $200 from the previous $280, while maintaining a “buy” rating for it.

The Deutsche Bank analyst cut online advertisement estimates for the whole industry, and projects ad spending will find a bottom in the second quarter of the year. His price target would still constitute a potential 17.6% rise.

James Lee, analyst at banking giant Mizuho (TO:8411), also lowered his price estimate for FB’s stock, targeting $220 down from an earlier $240 projection. Lee maintained a “buy” rating, with his target still corresponding to a near 30% rise. The analyst expects Fakebook’s Q2 advertisement revenue to drop to -16% year-over-year, believing things will return to normal by the second quarter of next year.

Finally, Credit Suisse (SWX: CSGN) analyst Stephen Ju lowered the firm’s price target for the social media giant to $234, from $272. The analyst noted that behind the drop was slower ad revenue growth, although he expects Facebook to “take an offensive stance in underwriting greater consumer activity/engagement with its services as well as the ongoing hiring of engineers.”

Despite the lower price target, Ju’s estimate would still amount to a 36.4% rise. The analyst maintained an “outperform” rating on FB shares given its potential for better-than-expected revenue growth and product innovation.

Facebook’s User Engagement Grew

Although analysts expected the social media giant to see its ad revenue to keep on slowing down – especially in countries taking aggressive actions to hinder the spread of the novel coronavirus – user engagement has grown.

On March 24, Facebook revealed it saw increased traffic happening on its messaging services, and more people checking their feeds and stories “to get updates from their family and friends.” The firm added:

We don’t monetize many of the services where we’re seeing increased engagement, and we’ve seen a weakening in our ads business in countries taking aggressive actions to reduce the spread of COVID-19.

While Facebook isn’t too exposed to the heavily hit travel industry, analysts pointed out that small medium enterprises could account for 20% of FB’s ad revenue, and have likely stopped spending on advertising for the time being.

Featured image via Unsplash.