REUTERS/Adnan Abidi
- Barclays analyst Ross Sandler’s mini case study shows Facebook will likely rebound soon.
- Shares tumbled more than 9% Monday and Tuesday, making for their worst two-day stretch in over five years.
- Unless the data breach that caused the sell-off causes users to delete Facebook, the stock will rebound.
- Watch the stock move in real time here.
Facebook‘s slide is likely short-term, and shares should rebound soon, according to a note from Barclays analyst Ross Sandler.
Shares of the social media giant got whacked Monday and Tuesday, down more than 9%, on news that Cambridge Analytica accessed data from 50 million users without their permission. That marked the stock’s worst two-day stretch in over five years and shaved off about $50 billion of market cap.
Sandler, however, believes that this week is “likely peak negativity” for Facebook shares. He arrives at this conclusion because of a key trend he found, showing what happens to battered stocks following negative news.
“If we take the Equifax data breach or the Volkswagen emissions scandal, we find that shares drop sharply initially, only to stabilize in 6-11 days and then recover,” Sandler said. “However, if we look at the BP oil spill, as more negative data points came forth week after week, shares fell for two full months and have yet to return to the same levels prior to the spill.”
Sandler concluded, “We think this week is more indicative of the former and is likely peak negativity for Facebook (the “freefall” phase) and we’d look to add to positions as the dust settles, potentially starting next week.”
Facebook is rebounding Wednesday, up almost 2% to $171 a share. It’s down about 8% on the week.
Thomson, Barclays Research
The scenario in which Facebook would get hurt in the long run is if the data breach, or other negative news items, hurts its user base. What Barclays, and likely investors, are watching out for is whether or not users start to delete their accounts.
The market will likely look past Facebook’s rough few days if users shrug off the data breach, or any other negative attention on Facebook. However, if users think that the privacy of their accounts is threatened then the platform is at risk of losing advertising dollars.
Facebook isn’t the only social media company that has come under fire as of late. Last week, Snapchat had to take down an ad that may have been offensive to domestic violence victims. And on Tuesday, Twitter shares took a hit after the Israeli government claimed the company had ignored its requests to remove content suggesting violence towards the state.
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