New Zealand video, executive departures hit analysts’ Facebook view

Wall Street took a negative view of Facebook on Monday, as investors shaved more than 3 percent off the company’s stock price following what one brokerage said a “negative network effect” has hit the social networking giant over the last week.

Before the stock market opened, Needham & Co. analysts Laura Martin and Dan Median lowered their rating on Facebook to hold, or the equivalent of neutral, from buy. The pair said they took down their view of Facebook due to a slate of high-level executive departures from the company, and a rash of controversy over how Facebook’s platform was used to live-stream parts of the mass shootings that killed 50 worshippers at two mosques in Christchurch, New Zealand, on Friday.

Martin said the live stream of the shootings, along with the departure last week of Facebook product chief Chris Cox and growing concerns about federal regulation of the company, have created a “negative network effect” about Facebook that investors may have a hard time ignoring in the weeks and months ahead.

“Network effects act as flywheel accelerator for both value creation and value destruction,” wrote Martin and Medina, in a research note Monday. The pair described a “network effect” as something that occurs when “each new user of a good or service adds value to some or all other users,” and added that “The bad news is that network effects can act as either a positive or negative valuation accelerator.”

The latest negative sentiment about Facebook sent the company’s shares down by 3.3 percent, to close Monday at $160.47.

In addition to Cox, a long-time lieutenant of Facebook Chief Executive Mark Zuckerberg, the company as also seen the departures recently of WhatsApp chief Chris Daniels, Kevin Systrom and Mike Krieger, the co-founders of Instagram and company security Alex Stamos.

Martin and Medina said they believe more senior leaders way leave Facebook, and departures will continue, “and since we believe that people are a key competitive advantage” for Facebook and other top internet-based companies, this implies accelerating value destruction until senior executive turnover ends.”