Top Pivotal Research analyst Brian Wieser sees a risky path ahead for four of the market’s big tech stocks. With 4Q17 earnings around the corner, he shares his insights on how Google, Facebook, Twitter and Snap look set to perform in the coming months. Although he boosts his price targets for each of these stocks, Wieser ultimately sticks to his bearish ratings and warns investors:
While we continue to expect long-term top-line growth for each of the four – we think risks to companies in the sector which are generally
ignored by investors will have an impact on the sector over time, and should be factored into valuations.
TipRanks reveals that Wieser is a top analyst to track. He boasts a 72% success rate and 11.2% average return across 142 stock ratings. Agree or disagree, his unique take on these stocks is certainly worth considering!
Let’s dive in now and take a closer look now:
Wieser is nervous that Google’s rapid ad revenue growth is not sustainable at current levels. By 2022, Google and Facebook will make up a whopping 91% of the world’s digital ad market, leaving little room for further growth and forcing the companies in less profitable directions. “While the two dominant players [GOOGL and FB] are potentially able to compete directly for ad budgets intended for other media (especially television), this will only occur at substantially lower margins than the Google and Facebook currently realize, limiting bottom line growth potential.”
On the bright side, in terms of consumption Google is performing very well. Wieser says that for “Google’s text-focused properties – including the home page, search and Gmail, maps, calendar, play, etc – we can see growth of +50% year-over-year.” Balancing these factors leads Wieser to publish a Hold rating on GOOGL with a $1,090 price target up from $990 previously. Despite the raise, his new price target still falls below the current share price of $1,112.
As this TipRanks’ screenshot shows, the analyst consensus on GOOGL is much more encouraging. This ‘Strong Buy’ stock scored 18 buy ratings vs 3 hold ratings in the last three months. These analysts see (on average) the stock spiking 6% to hit $1,178. You can click on the screenshot to dig down into the latest market activity on GOOGL stock.
Lone bear Wieser is the only analyst on the Street displaying any reservations about FB right now. He has a very rare Sell rating on the stock with a $147 price target (22% downside from the current share price) up from $136. The analyst reveals a worrying statistic: “In the US, we also note a new risk not widely appreciated related to slowing or declining consumption of Facebook. From our analysis of Nielsen’s DCR [digital consumption rating] data for September core Facebook consumption failed to grow year-over-year for a second consecutive month.” Specifically, consumption among over 18’s dropped -0.1% year-over-year following a decline of -0.9% in August.
Interestingly note that, as we can see below, this analyst does have a strong track record across his FB recommendations. He first downgraded his Buy rating to Hold in February 2017, and then again at the end of July. “With every passing year, digital advertising is closer to a point where the market is saturated” Wieser explained as he slashed his rating to Sell.
Unlike Wieser, the Street is very optimistic about FB’s outlook The stock has a ‘Strong Buy’ analyst consensus rating with 30 recent buy ratings. Plus, the $216 average analyst price target works out at a 15% upside from the current share price of $188.
This is a niche company that should see limited growth in the upcoming year says Wieser. “We forecast that the company is positioned to grow in 2018, especially as the platform continues to demonstrate its relevance to a substantially sized, if still niche audience on a daily basis.” However, he adds the big caveat: “Of course, we don’t think investors should get too far ahead of themselves on Twitter, as we’re doubtful that the company can grow its top-line beyond the low double digits any time soon.” Wieser reiterated his hold rating on TWTR and boosted the price target $3 to $21 (13% downside).
Unfortunately for Twitter, the picture from the Street is hardly any more uplifting. The stock has a Hold analyst consensus rating and a $20.35 average analyst price target. Given that TWTR is currently trading at $24, this indicates a 16% downside from the current share price.
Snap Inc (NYSE:SNAP)
“Although we are still negative on Snap as a stock and think that it will take time to grow into its current valuation given limited market potential, we note a positive consideration related to consumption of the platform” states Wieser. Good news for Snap investors! Consumption is growing rapidly: among over 18’s consumption is up +126% following on +95% gains in August. These rates are even faster than larger rival Instagram. Nonetheless, Wieser’s sell rating on SNAP comes with a very bearish price target of $10 (29% downside) from $8. He says the stock still faces big challenges including persuading advertisers to buy premium ad space on Discover.
Overall, the Street is also sidelined on SNAP. Like Twitter, SNAP has a cautious Hold analyst consensus rating while the average analyst price target of $13.27 suggests a 6% downside from the current share price.