Facebook’s Valuation is at Risk From Regulators

HSBC Global Strategies believes the social media company is overinflated by nearly 40 percent.

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The U.K. investment firm HSBC Global Strategies said that Facebook’s valuation is overvalued and ambitious and that investors should sell the stock. The investment management firm believes that regulatory offenses likely will equal around 38.5 percent of Facebook’s current value.

These regulatory infringements may result in anti-competitive fines, trust-busting, privacy fines, taxes, and other regulatory issues.

HSBC Global Strategies says $225 billion of the social media company’s $565 billion in market cap will likely be trimmed away.

Nicolas Cote-Colisson, an HSBC senior analyst, said: “Although it has taken time for policymakers and regulators to ready their ideas, it should now be clear they have well-advanced plans for intrusive interventions.”

In recent months, Facebook has been the recipient of criticism from regulators and politicians in the U.S. and globally. Both the Federal Trade Commission (FTC) and the European Union are investigating Facebook. The most recent inquiries have to do with Facebook’s plans to launch its digital currency, Libra.

Even though regulators are scrutinizing Facebook over the currency, Facebook shares have been up by more than 50 percent this year. HSBC believes once the regulatory threats are more appreciated, Facebook stock will drop quickly.

Cote-Colisson also said that Facebook’s accelerated growth might be detrimental to the company because it’s likely to advance regulatory scrutiny. Once the crackdown really gets underway, Facebook is expected to lose a good chunk of its market value.

Cote-Colisson also pointed out that any telecoms regulation might encourage users to move towards the competition.

HSBC believes that Facebook’s growth will slow down due to potential threats, and its valuation will adjust accordingly.

According to FactSet, the 12-month target price for Facebook stands at $238.28 a share. But, HSBC has initiated a 12-month target price of $178 a share. On Wednesday, Facebook shares stood at $198.71.

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