Analysts, advertisers, and investors are beginning to unfriend Facebook (FB) after years of bullish analysis and performance.
The Menlo Park, California-based social media firm was lower in early morning trading Friday, giving up some gains from Thursday's trading as the company was a rare gainer.
"Facebook's management team has created too many adversaries - politicians/regulators, tech leaders, consumers, and employees - to not experience long-term negative ramifications on its business," Stifel analyst Scott Devitt wrote recently in a research note. "Many leaders of Silicon Valley, including respected voices [Salesforce (CRM) CEO] Marc Benioff and [Apple CEO (AAPL) ] Tim Cook, have turned against Facebook due to differences in corporate values. Most importantly, consumers and some employees seem to have grown disenchanted with the company."
Devitt downgraded the stock from "Buy" to "Hold" and issued a $150 price target for the stock.
Socially Irresponsible Media
Part of the reason the company is falling out of favor is its consistent, headline-grabbing privacy and data protection problems.
Public disputes as of late have included spam accounts flooding the site with misinformation, "anger groups" in France fueling riots that have ravaged the city of Paris, and data breaches across millions of accounts globally.
The recent troubles only add to damaging findings from Facebook's role in the genocide in Myanmar, the bloody drug war in the Philippines, and the famous Cambridge Analytica scandal.
The recent problems in Europe are particularly worrisome as continual EU-based scrutiny on the company's activities could stand to damage their business model if GDPR style regulations are taken further.
In the near term, many investment funds operating by Socially Responsible Investment (SRI) and Environmental, Social, Governance (ESG) guidelines are dropping the name from their portfolios.
Eaton Vance's Calvert Investments, Domini Impact Investments, and Alliance Bernstein are among the key names unfriending Facebook based on their non-compliance with their guidelines, Reuters reports.
To be sure, the company has fought back against this issue, citing their commitment to transparency and improving its response to problems, particularly in the wake of the implications against the company in the Rohingya massacre in Myanmar.
Primarily, the FB has highlighted efforts to take down spam and harmful content.
"Maintaining transparency around the nature and extent of the government requests we receive for user data, and how we make decisions about what content stays up or what comes down on Facebook, is really important to us," Chris Sonderby, Facebook's VP & Deputy General Counsel said in a statement.
As such, the company has highlighted its transparency reports and efforts to quell nefarious actors on its platforms.
Rumors have abounded as of late that the company may also buy a cybersecurity company in order to shore up its persistent privacy problems.
However, the avoidance from socially responsible funds amid privacy issues has also been followed by a draining of the life-blood from the company: advertising revenue.
"Facebook continues to struggle with growth at Instagram, barely sufficient to offset declines at the core app, and with combined usage losing share to other digital media owners," Pivotal Research analyst Brian Wieser wrote on Thursday.
Based on advertiser trends he set a "Sell" rating for the stock as he anticipates market share for advertisers to flee to comeptitors like Twitter (TWTR) , Alpahabet (GOOGL) , Snap (SNAP) and Amazon (AMZN) .
As the company receives essentially all of its revenue through advertising, such a trend would be highly damaging to the company's outlook after the stock has already slid 26% in the past six months.
Still, with 2.3 billion active users, many don't see avoidance of Facebook entirely as a viable advertising strategy as of yet.
With Facebook and Alphabet contributing 90% of digital advertising growth in recent years, according to Adexchanger, the company may be too big to fail advertisers.
"Advertisers have to go where the eyeballs are," Michael Pachter, Managing Director of Equity Research at Wedbush Securities, told Real Money in an interview earlier this year. "When advertisers are looking online, they're looking at the two biggest gorillas, and that's Facebook and Google."
For the time being, the data suggests that is largely holding true.
The social media giant's appeal amid its advertising clout and severely slashed P/E ratio may make the company an attractive play for speculators.
However, the stench wafting off of the heap of bad news and the myriad of issues confronting Facebook has driven many former friends, including major investors, away.
"While there doesn't appear to be material downside to FB shares, we don't find the upside as compelling as other companies under coverage," Stifel's Devitt declared. "We believe Facebook will struggle to return to the company that it once was or that investors expected it to be in the long run."
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