Facebook dropped Monday after a Wall Street brokerage downgraded the stock to a hold rating and warned clients that the recent departure of 11 senior managers could spark further flights from the social media giant.
Needham analyst Laura Martin wrote that Facebook's pivot toward privacy and encrypted messaging, rising regulatory risk and the upload of disturbing content will accelerate the management exodus in what she called a "Negative Network Effect."
"We are concerned that regulatory, headline, and strategic pivot risks will negatively impact Facebook's valuation more than investors currently believe due to the negative flywheel created by Network Effects," Martin wrote. "A Negative Network Effect suggests that departures will continue, and since we believe that people are a key competitive advantage of FAANG companies, this implies accelerating value destruction until senior executive turnover ends."
Facebook has seen the departures of several top managers in recent months, including Chief Product Officer Chris Cox and Instagram co-founders Kevin Systrom and Mike Krieger. Cox left last week.
Facebook also drew criticism last week after an alleged white supremacist terrorist in New Zealand livestreamed his attack, which killed 50 people, on the social media site. Google's YouTube and Twitter also struggled to track down and remove the disturbing content.