Coinciding with the reports that Facebook (FB) is developing a cryptocurrency, brokerages on Friday downgraded the social media giant, sending the stock down 5%. While the digital currency is currently in the conceptual stage, the company’s move is viewed as a prelude to its entry into financial services.
Taking a pessimistic view of Facebook’s earnings outlook for next year, New York-based research firm Needham & Company lowered its price target to $170 from $215. The observation is in line with the general perception that Facebook may come under more stringent scrutiny in the coming years, with far-reaching consequences. However, the analyst maintained the buy rating on the company.
Of late, there has been widespread skepticism about the sustainability of the company’s European operations, where it suffered huge fines recently for violating data privacy norms. It is feared that the region’s softening economic growth and high tax rates could impact Facebook’s growth prospects. Lowering its rating on the company to sell from hold, German brokerage DZ Bank Friday raised concerns about Facebook’s future growth. The analyst also lowered the price target to $115 from $145.
There has been widespread skepticism about the sustainability of Facebook’s European operations, where it suffered huge fines recently
Earlier, Bloomberg reported that the company is all set to launch its own digital currency that will allow people to transfer money on WhatsApp. According to sources, the virtual currency will be linked to the US dollar and first launched in the Indian market, facilitating minor transactions.
Though such dollar-pegged digital currencies are resilient to major fluctuations, the current volatility in the crypto market undermines the sustainability of Facebook’s venture. The report also stated that David Marcus, the former president of PayPal (PYPL) who was picked by the Facebook leadership for the messenger app a few years ago, will be leading the new project, raising speculation that the company is planning to diversify into financial services.
However, there is enough reason not to read too much into the latest development because trying a hand at blockchain, the technology that drives digital currencies, is a fad among many Wall Street firms now. IBM (IBM), Amazon (AMZN) and Walmart (WMT) are among those exploring the crypto business.
Shares of Facebook fell about 32% this year, and the downfall was exacerbated by the data breach scandal involving UK-based political consulting firm Cambridge Analytica.