Although Facebook posted better-than-expected earnings this week, some analysts see trouble ahead for the social giant.
Among other concerns, Facebook’s ad growth continues to decline in key markets. Stateside, annual ad growth fell from 27% in Q3 2019 to 21.5% in Q4.
“We believe this was below investor expectations, as well as our recent checks,” Raymond James analysts Aaron Kessler and Justin Patterson assert in new note to clients.
Michael Levine, senior analyst at Pivotal Research, was particularly struck by Facebook’s domestic ad decline. “The slow down, particularly in the US, was far greater than we expected and sounds likely to persist,” Levine wrote in a client note.
Changes that Google and Apple are making to their Web browsers and mobile operating systems are making it more difficult for Facebook to target advertising.
Combined with stricter tracking standards in Europe, these “targeting related headwinds” will continue to haunt Facebook this year, and potentially next year, according to Levine.
Regarding Facebook’s earnings report, BMO Capital analyst Daniel Salmon noticed that management elaborated on targeting headwinds “more than previously, including platform changes from ‘mobile operating systems and browser providers such as Apple and Google.’ ”
For Salmon, this was a sign that Facebook sees clouds on the horizon.
Additionally, Levine said he remains concerned about the possibility of the Federal Trade Commission and the Department of Justice pursuing cases against Facebook.
As such, Pivotal has decided to downgrade Facebook’s stock from “buy” to “hold,” in addition to lowering its price target for the FAANG stock.
Industry insiders are watching closely to see what impact Facebook’s just-launched “Off-Facebook Activity” tool has on users.
Designed to help users control how Facebook tracks their activity around the broader Web, the tool could scare some people away from the platform, according to Kunal Gupta, CEO of ad-tech firm Polar.
“It’s scary,” Gupta wrote in an email. “Even I was surprised to see how much of my browsing history Facebook had.”