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Stock Analyst Update

Advertising Walkout on Facebook Gains Momentum

Our fair value estimate has not changed for the social media company.

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Over the weekend, more large brands and advertisers, including Coca-Cola, Starbucks, and Unilever, announced plans to pause or reduce ad spending on social media platforms (mainly Facebook and its Instagram platform) in protest against the lack of controls to limit hate speech and misinformation. The movement, which began on June 17, has gained momentum, increasing the risk for firms such as Facebook (FB) and Twitter (TWTR), while possibly creating some opportunities for Pinterest (PINS) and Alphabet (GOOG/)(GOOGL) . However, we anticipate that most of the advertisers will return to Facebook given its more than 2.6 billion users. In the meantime, Facebook can take steps to demonstrate it will reduce hate speech further on the platform; although more content oversight could bring more regulatory risks to the forefront. With the current advertiser walkout, we have not changed fair value estimates for the social media companies under our coverage. We value Facebook, Twitter, Snap (SNAP), Pinterest, and Alphabet at $215, $30, $17, $26, and $1,400 per share, respectively. We continue to view Facebook, Twitter, and Alphabet as fairly valued, while Snap remains overvalued. The recent sell-off in the social media names has made Pinterest, which is approaching a 4-star rating, attractive.

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Ali Mogharabi does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.