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Home / Special Reports / US Tech Stocks Drop

This report is not a personal recommendation and does not take into account your personal circumstances or appetite for risk.

21 March 2018

US Tech Stocks Drop

This week, US tech stocks have faced heavy losses as an emerging UK data scandal faces investigations by authorities in both Europe and North America.

This report will break down the key issues, including what is happening and why, as well as delving deeper into the sharp moves these US stocks have made.

What caused the sell-off?

Over the weekend, the UK’s Observer and the US New York Times reported that Cambridge Analytica, a UK political consultancy credited with helping Donald Trump win the US Presidency, had illegally retained access to the data of 50 million Facebook users.

Furthermore, Channel 4 revealed on Monday that the company used underhand tactics, such as corruption and entrapments, to influence political opponents.

The scandal has raised a wider question over how the company came to hold the data of these Facebook users, as well as how this data was then utilised.

So, what happens now?

The scandal has resulted in Cambridge Analytica CEO Nix being suspended after being filmed claiming his company engaged in ‘honey traps’ and bribes.

It has also raised concerns from regulators on both sides of the Atlantic about how Facebook and other social media companies collate and distribute data.

The UK parliament’s Digital, Culture, Media and Sport Committee, the European Commission and the US Federal Trade Commission have all requested founder Mark Zuckerberg, or a senior executive, provide evidence about Facebook’s involvement.

What impact has it had on tech stocks?

Facebook was the first company to face the wrath of investors, falling 8.3% since Monday after the news broke. This equates to almost $50bn of the company’s market cap being lost in just two days.

But it’s not just Facebook that has been hurt in the scandal, as other social media companies also face greater scrutiny over how they handle users’ data.

Twitter shares fell over 10% on Tuesday as it became the latest big name to suffer a reduction in confidence from investors over how it handles data.

There have also been sharp moves lower by Snap, the parent company of popular messaging app Snapchat, falling by 2.6% on Tuesday, and Google parent Alphabet, itself 3.4% lower so far this week.

It’s worth noting that the scandal has erupted just months before Europe introduces stricter data protection rules with heavy fines for offenders.

Are there any companies unaffected?

The scandal has not had a significant impact on US tech stocks which investors believe less personal data that could be exploited for illegal purposes.

Companies such as Netflix and Amazon, despite seeing a marginal retreat in share price on Monday, saw strong recoveries on Tuesday, highlighted by Amazon overtaking Alphabet as the world’s second largest company behind Apple.

Over the page, we look at four major US tech companies affected in varying degrees by the ongoing Cambridge Analytica scandal.

Page: 01

Facebook (US: FB)

Facebook, the company at the centre of the Cambridge Analytica scandal, has seen its shares fall markedly. Regulators on both sides of the Atlantic are demanding answers from the social media company as to how the data of 50 million users was both released to the political consultancy and what that data was used for.

Shares fell 7.3% on Monday after the weekend’s revelations, before falling another 2.6% on Tuesday. Despite falling once again, however, shares closed well off their lows as investors price in the potential impact on shares.

Will Facebook return to 2018 highs of $195 (+16%) or breach September lows of $162 (-3.7%)?

  • Shares have fallen to 6-month lows as a result of the sharp sell-off this week
  • Relative Strength Index (RSI) is approaching oversold, while Stochastics turn back from overbought
  • Momentum has turned sharply negative from a near 1-month high
  • Brokers are overwhelmingly positive, as 97% of brokers hold a 12-month target above current level

Broker Consensus: 90% Buy, 6% Hold, 4% Sell

Bullish: RBC Capital Markets, Outperform, Target $250, +49% (1 Mar 17)

Average Target: $222.4, +32% (21 Mar 18)

Bearish: Pivotal Research, Sell, Target $152, -9.6% (19 Mar 18)

Pricing data sourced from Bloomberg on 23 March. Please contact us for a full, up to date rundown

Page: 02

Twitter (US: TWTR)

Twitter is another social media company that has borne the brunt of the Cambridge Analytica scandal. Regularly in the news for allegations of fake accounts or ‘bots’, as well as being the social media outlet of choice for US President Trump. The company reported it had over 260 million users at the end of 2017.

The company’s shares fell over 10% on Tuesday as it became the latest company to be targeted during the ongoing scandal, although have yet to fall below $30 or February’s lows of just above $24.

Will Twitter return to 2018 highs of $37 (+18%) or fall to 2018 lows of $22 (-30%)?

  • Shares trade at a March low after a 10% decline on Tuesday, although remain above February lows
  • RSI has turned oversold, while Stochastics have bearishly crossed and turned back from overbought
  • Momentum at lowest level since August 2017
  • Brokers are negative on Twitter, with 78% of brokers holding a 12-month target below current level

Broker Consensus: 16% Buy, 57% Hold, 27% Sell

Bullish: Argus Research, Buy, Target $40, +28% (9 Feb 18)

Average Target: $27.7, -12% (23 Mar 18)

Bearish: Atlantic Equities, Underweight, Target $14.5, -54% (8 Feb 18)

Pricing data sourced from Bloomberg on 23 March. Please contact us for a full, up to date rundown.

Page: 03

Snap Inc (US: SNAP)

Snap, the parent company of popular picture messaging app Snapchat, is a relative newcomer to the world of social media. However, the company has already faced scrutiny from investors over both its popularity and the use of users’ data, given that its most popular feature is its ‘disappearing’ photo messages.

Its shares have come under pressure as a result of the Facebook scandal, however they have not faced as much selling as social media peers. Will the shares therefore recover some poise before larger rivals?

Will Snap return to 2018 highs of $21 (+31%) or fall to November lows of $12 (-25%)?

  • Shares have fallen to a 1-month low, however may have found some intersecting support
  • RSI approaching oversold, while Stochastics turning back from pivotal 50 level
  • Momentum has turned negative, however is holding around March lows
  • Brokers are evenly split, with just over half of brokers holding a 12-month target above current level

Broker Consensus: 23% Buy, 48% Hold, 29% Sell

Bullish: Goldman Sachs, Buy, Target $23, +44% (7 Feb 18)

Average Target: $15.7, -1.8% (23 Mar 18)

Bearish: Susquehanna Financial, Negative, Target $7, -56% (16 Feb 18)

Pricing data sourced from Bloomberg on 23 March. Please contact us for a full, up to date rundown.

Page: 04

Netflix (US: NFLX)

Netflix, the video streaming service, has been one of the US tech stocks least affected by the ongoing Facebook scandal. Despite being one of the largest US tech companies, with almost 120 million users worldwide, the company’s smaller social reach means that users are less likely to share important data between themselves.

While other tech stocks in the US face share price declines of well over 10%, Netflix shares are trading back at the same price as they were on Friday. Will they be able to climb to better 2018 highs as peers fall by the wayside?

Will Netflix return to 2018 highs of $334 (+5.2%) or fall to February lows of around $235 (-26%)?

  • Shares recovered from Tuesday’s lows to trade at the same level as last Friday’s close
  • RSI remains bullishly above 50, although Stochastics have turned back from overbought
  • Momentum has turned negative for the first time since mid-February
  • Brokers are negative on Netflix, with 65% brokers holding a 12-month target above current level

Broker Consensus: 55% Buy, 38% Hold, 7% Sell 

Bullish: Pivotal Research, Buy, Target $400, +26% (6 Mar 18)

Average Target: $277.7, -13% (21 Mar 18)

Bearish: Societe Generale, Sell, Target $132, -58% (25 Jan 18)

Pricing data sourced from Bloomberg on 23 March. Please contact us for a full, up to date rundown.

Page: 05

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Page: 06

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Page: 08

This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.

Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance. Prepared by Michael van Dulken, Head of Research

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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.

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