Facebook at Risk of 30% Drop From U.S. Regulations, Citi Warns
Despite tight regulations, Citi still recommends buying the shares and views analyst estimates for 2020 and 2021 as too low.
(Bloomberg) -- One of Facebook Inc.’s newest analysts came out of the gate with a harsh warning that regulatory risks have the potential to wipe out more than a quarter of the stock’s value.
Citigroup transferred coverage of Facebook to analyst Jason Bazinet, who told clients that the company “likely” faces three long-term threats from the U.S. government: being forced to unwind the Instagram acquisition, having to offer a fully private service to paying customers and complying with potential new U.S. rules mirroring the EU’s General Data Protection Regulation. These risks collectively could shave $55 to $60 from the share price, or about 30% of its current value, Bazinet warned.
While it’s not certain that all of these actions will be taken, the “risks are unlikely to be resolved in the next 12-24 months,” Bazinet said. Despite the regulatory overhang, Citi still recommends buying the shares and views analyst estimates for 2020 and 2021 as too low. The bank has a risk-adjusted price target of $240, matching the median of analysts surveyed by Bloomberg.
While regulatory risks aren’t a new topic for Facebook investors, most analysts have downplayed the chances that U.S. lawmakers would take significant action against the social-media company despite increased Congressional scrutiny. Only two analysts tracked by Bloomberg recommend selling Facebook shares, compared to 47 buy ratings and six neutrals.
To contact the reporters on this story: Catherine Larkin in Chicago at clarkin4@bloomberg.net;Ryan Vlastelica in New York at rvlastelica1@bloomberg.net
To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, Richard Richtmyer
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