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Here's Why This Analyst Downgraded Facebook to a Sell Rating

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On Monday, shares of tech giant Facebook Inc. are sliding, down about 1.3% to $170.18 per share in morning trading after an analyst at a small research firm downgraded the stock to a Sell rating from a Hold.

Analyst Brian Wieser is part of Pivotal Research, an equity research company based in New York City. The decision to lower its rating on Facebook comes just days after the social media company reported a massive earnings beat and monthly active user count of 2 billion. Weiser believes that because large companies are “scrutinizing” their marketing budgets, Facebook is facing the risk of digital ad saturation.

"We think that the market is looking at upside potential without appropriately considering risks to growth," Wieser wrote in a note to clients Friday. "With every passing year, digital advertising is closer to a point where the market is saturated." 

He went on to say that large company advertisers represent 30% of Facebook’s sales, pointing out how Procter & Gamble (PG - Free Report) recently cut $140 million from its digital ad budget and said it had no impact on its revenue.

The consumer staple giant’s "statement will undoubtedly add fuel to the fire of large brands more carefully scrutinizing their digital advertising choices," he wrote. "There are limits to growth to spending on advertising, as marketers are mostly unable to tap into broader and generally segregated marketing budgets." 

Along with lowering his rating, Wieser reaffirmed his year-end price-target of $140 for Facebook, which represents a 19% downside from Friday’s close.

Wieser also cut his rating for Facebook stock back in February, lowering it to a Hold from a Buy. CNBC notes that there is only one other Wall Street analyst out of 40 that has either a Sell or Underweight rating on Facebook.

FB is currently a #2 (Buy) on the Zacks Rank, and shares of the company have gained over 47% year-to-date.

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