New Zealand video, executives’ exits, concern over regulation sink Facebook
Analysts worry about ‘negative network effect’
Wall Street took a negative view of Facebook on Monday, with the company’s stock price falling more than 3 percent following what one brokerage called a “negative network effect” hitting the social networking giant over the past week.
Before the stock market opened Monday, Needham & Co. analysts Laura Martin and Dan Median lowered their rating on Facebook to hold, or the equivalent of neutral, from buy. The pair said they took down their view of Facebook due to a slate of highlevel executive departures from the company, and a rash of controversy over how Facebook’s platform was used to livestream parts of the mass shootings that killed 50 Muslim worshippers at two mosques in Christchurch, New Zealand, on Friday.
Martin said the livestream of the shootings, along with the departure last week of Facebook product chief Chris Cox and growing concerns about federal regulation of the company, have created a “negative network effect” about Facebook that investors may have a hard time ignoring in the weeks and months ahead.
“Network effects act as flywheel accelerator for both value creation and value destruction,” Martin and Medina wrote in a research note Monday. The pair described a “network effect” as something that occurs when “each new user of a good or service adds value to some or all other users,” and added that “the bad news is that network effects can act as either a positive or negative
valuation accelerator.”
The latest negative sentiment about Facebook sent the company’s shares down by 3.3 percent, to close Monday at $160.47.
In addition to Cox, a longtime lieutenant of Facebook Chief Executive Mark Zuckerberg, the company as also seen the departures recently of WhatsApp chief Chris Daniels; Kevin Systrom
and Mike Krieger, the co-founders of Instagram; and company security Alex Stamos.
Martin and Medina said they believe more senior leaders may leave Facebook, “and since we believe that people are a key competitive advantage” for Facebook and other top internet-based companies, “this implies accelerating value destruction until senior executive turnover ends.”