This Analyst Saw Facebook Decline Coming and Says Rout Is Not Over

(Bloomberg) -- Long before Facebook Inc. shares took their historic dive, after second-quarter earnings missed the average Wall Street estimate for sales and user growth, two analysts were already recommending to sell the stock.

Brian Wieser, of Pivotal Research Group, has had a sell rating on Facebook since last year. Societe Generale SA's Simon Baker has the other sell call and has held that view since at least 2015, according to data compiled by Bloomberg. Wieser also has a Street-low price target of $140, about 20 percent below the $174.78 low reached so far in New York trading Thursday. The stock has 42 buy recommendations and four holds.

“What a lot of the investment community has missed, is that they looked at growth as rather infinite,” Wieser said in an interview on Bloomberg TV, referring to digital advertising. “This is only part of a bigger story that hasn't fully played out yet.”

For a while, Wieser had reason to worry about his contrarian rating. There were volatile periods, including about a 20 percent-plunge over two weeks in late March after revelations of the Cambridge Analytica scandal. But the stock remained largely resilient through the past few months of tumult. The shares closed Wednesday at a record high of $217.50, before earnings were announced.

Then everything changed after Facebook reported sales and user growth numbers that missed estimates. And Chief Financial Officer David Wehner said revenue growth rates would decline in the third and fourth quarters. Most analysts were blindsided, asking frequently on a conference call with executives for more information on exactly how the company's financial future had changed so dramatically.

By early Thursday several analysts downgraded their ratings.

Even so, Wieser said expectations are probably still a little too robust.

“We haven't even really hit on the broader managerial problems that the company has, let alone the FTC fines they'll probably experience,” he sad.

Some analysts, however, were remaining stalwartly optimistic.

“Though the shifts at Facebook are likely to result in several quarters of uncertainty,” said KeyBanc analysts led by Andy Hargreaves, “We believe the company can execute the transition and see limited potential downside.”

To contact the reporter on this story: Julie Verhage in New York at jverhage2@bloomberg.net

To contact the editors responsible for this story: Mark Milian at mmilian@bloomberg.net, Molly Schuetz, Andrew Pollack

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