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Facebook Trading Lower After Citi Downgrade

Facebook Inc. (FB) is trading near a weekly low on Monday after Citi analyst Jason Bazinet downgraded the social media giant from ‘Buy’ to ‘Neutral’, insisting that Wall Street is “overly bullish on the growth potential of the advertising market”. The stock has sold off more than 1% in the pre-market and is pressing against a trading floor near 315, with a breakdown favoring a critical test of April breakout support at 303.

Politics and Advertising

The company is highly dependent on advertising revenue to meet quarterly revenue guidance, vulnerable to cyclical forces that can impact a broad spectrum of marketing decisions. The stock is trading near an all-time high even though the pandemic is still taking a bite out of ad purchases while stubbornly high unemployment rates and slow vaccine uptake in other parts of the world could defer the much-heralded ‘return to normalcy’ until 2022.

Facebook is also a prime political target due to its massive footprint and engagement in questionable censorship practices. Along with Alphabet Inc. (GOOG) and Twitter Inc. (TWTR), Republicans have accused CEO Zuckerberg and Co. of selective censorship under the broad spectrum of ‘misinformation’.  Unfortunately, they’re finding few friends on the other side of the aisle, with Democrats opening investigations on monopolistic behavior.

Wall Street and Technical Outlook

Wall Street continues to ignore the political intrigue, yielding a ‘Buy’ rating based upon 39 ‘Buy’, 4 ‘Overweight’, 6 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $225 to a Street-high $460 while the stock is set to open Monday’s session $70 below the median $395 target. This low placement suggests Main Street is taking the political controversy more seriously than the denizens of lower Manhattan.

Facebook rallied above 2018 resistance near 200 in May 2020 and entered a strong uptrend that topped out at 303.60 in September. The subsequent correction found support at the 200-day moving average in January 2021, yielding a bounce that mounted the 2020 peak in March. It posted an all-time high at 329.82 in April and turned lower once again, dropping about halfway down to breakout support. A test at that level should offer a low risk buying opportunity unless another round of political conflict hits the 24-hour news cycle.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.