Marlene Awaad | Bloomberg | Getty Images
Mark Zuckerberg, chief executive officer and founder of Facebook Inc., listens during the Viva Technology conference in Paris, France, on Thursday, May 24, 2018.
Facebook dropped Monday after a Wall Street brokerage downgraded the stock to a hold rating and warned clients that the recent departure of 11 senior managers could spark further flights from the social media giant.
Needham analyst Laura Martin wrote that Facebook’s pivot toward privacy and encrypted messaging, rising regulatory risk and the upload of disturbing content will accelerate the management exodus in what she called a “Negative Network Effect.”
“We are concerned that regulatory, headline, and strategic pivot risks will negatively impact Facebook’s valuation more than investors currently believe due to the negative flywheel created by Network Effects,” Martin wrote. “A Negative Network Effect suggests that departures will continue, and since we believe that people are a key competitive advantage of FAANG companies, this implies accelerating value destruction until senior executive turnover ends.”
Facebook has seen several of its top managers leave the company within the past several months, including Chief Product Officer Chris Cox to Instagram co-founders Kevin Systrom and Mike Krieger. Cox left last week.
Martin has a $170 price target on shares of Facebook, less than 3 percent from Friday’s closing price of $165.98. Shares fell 1.2 percent in premarket trading Monday following the Needham note; the equity is down 9.7 percent over the past 12 months.