Edison Research analyst Richard Windsor thinks you should sell Facebook stock – despite the social media octopus posting record numbers.
Facebook's operating expenditure is set to mushroom as it hires humans to police its network in response to criticism about advertising.
"This will result in weakness in the share price and a re-rating of the valuation," Windsor thinks.
CEO Mark Zuckerberg told analysts yesterday:
We are doubling our team working on security and content review to more than 20,000 people by the end of this year, and this includes content reviewers with specific language skills to detect hate speech in places like Myanmar. We're also working to protect political discourse by making ads more transparent.
Long-term there could be upside as Facebook moves from being a series of services to a more immersive place for users to live their digital lives but for now I see problems. I am heading for the door but I do intend to come back at some point.
The Zuck also admitted "some measures of engagement will go down".
It's fair to say Windsor is an outlier, but he is not alone. Stifel analyst Scott Devitt changed his "Buy" rating to "Hold", while Brian Wieser of Pivotal Research, who has highlighted structural problems with the ad business that underpins Facebook and Google, again warned of "a headwind to growth". He maintains his sell rating on Facebook and a hold on Alphabet.
Facebook posted revenue of $11.795bn for the first three months of this year, up 50 per cent from the same period last year. Profits for the quarter were around $5bn. ®