FB – Need to Know: Facebook's been one of the strongest FAANGs this year. Here's why it's just been downgraded.

The FAANG grouping of stocks haven’t really had much in common this year, with performance ranging from a 58% surge in Google parent Alphabet
GOOG,
+1.11%
,
to a 2% drop in online retailing giant Amazon
AMZN,
+0.38%
.

Arete Research, an independent research service focusing on the tech sector, said it’s time for a breather in the second-best performer of that group, Facebook
FB,
+1.20%
,
which has surged 32% this year. They downgraded Facebook to neutral from buy and left its price target at $381, or 6% above Friday’s closing price.

The issue is that, while Facebook saw a large 47% jump in impression pricing in the second quarter, the number of ad units grew just 6% — the slowest growth since the fourth quarter of 2017. Google hasn’t had this problem, since it could replace pandemic-related search queries with travel searches. Since revenue growth is driven off impression growth, the Arrete analysts expect Facebook shares to trend sideways the rest of the year.

That problem of impressions won’t last forever, the analysts add. They cite Facebook’s growing presence on e-commerce, which should help boost time spent in 2022. Facebook Chairman and CEO Mark Zuckerberg, on the company’s second-quarter earnings call, explained the company’s desire to create more native commerce experiences across its apps.

“What we found is that when these ads link off site, you often land on a web page that’s not personalized or not optimized or where you have to reenter your payment information, and that’s not a good experience for people, and it doesn’t lead to the best results for businesses either,” said Zuckerberg.

The Arrete analysts say, on an enterprise value-to-EBITDA basis, Facebook is attractively valued, at just 12 times 2022 earnings, versus 26 times 2022 earnings for Twitter
TWTR,
+0.76%

and 16 times for Alphabet.

The buzz

The Kansas City Fed announced the Jackson Hole event will be online only, rather than in person, a sign of the growing difficulties the U.S. encountering from the delta strain of coronavirus. According to a Bloomberg News article, Fed Chair Jerome Powell’s re-appointment is supported by Treasury Secretary Janet Yellen, and that Biden will make his decision around Labor Day.

The economics docket includes flash purchasing managers indexes and existing home sales data. In the eurozone, the composite PMI edged slightly down to 59.5 in August from 60.2 in July, in what still was a strong reading.

Uber Technologies
UBER,
+0.23%

and Lyft
LYFT,
-1.92%

both slumped in premarket trade after a judge ruled a California proposition that classified drivers as contractors instead of employees was unconstitutional.

Pfizer
PFE,
-0.16%

reached a $2.3 billion deal for Trillium Therapeutics
TRIL,
+3.92%
,
with the $18.50-per share offer a more than 200% premium to Friday’s close.

The U.K. Competition and Markets Authority it has launched a merger inquiry into S&P Global’s
SPGI,
+0.82%

plan to buy IHS Markit
INFO,
+0.78%

for $44 billion.

The markets

U.S. stock futures
ES00,
+0.35%

NQ00,
+0.28%

rose to kick off the week. Oil
CL.1,
+2.96%

futures surged, and bitcoin
BTCUSD,
+3.68%

climbed over $50,000.

The Nikkei 225
NIK,
+1.78%

rose nearly 2% to lead gains across Asia, while European stocks enjoyed a smaller advance.

Random reads

China is planning to build 43 new coal-fired power plants.

James Bond actor Daniel Craig says he won’t pass on his millions to his children.

Former President Donald Trump found a way to get his supporters to boo him — by encouraging vaccinations.

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