UPDATE: Evercore Downgrades Facebook Noting Youth Engagement & WhatsApp Monetization Concerns

In a report published Thursday, Evercore analyst Ken Sena downgraded Facebook (NASDAQ: FB) from Overweight to Equal-Weight and lowered the price target from $70.00 to $60.00.

Sena noted that although opportunity for higher ad pricing remains, "the cost of delivering increased engagement that is higher than we are comfortable with." Evercore reported on concerns regarding youth engagement, and the monetization and engagement with the WhatsApp acquisition.

The analyst noted that that analysis on youth engagement in Facebook is mixed. Sena commented, "Two questions often arise in discussing Facebook's hold on its vast membership base: 1) the rapid growth of alternative social communication / instant messaging experiences and 2) the long-term attractiveness or stickiness of Facebook to its younger audience." Sena remarked that according to proprietary analysis, Facebook youth under-indexed peers and the internet overall.

On Wednesday, Facebook announced that it has reached an agreement to acquire WhatsApp for a total of approximately $16 billion, including $4 billion in cash and approximately $12 billion worth of Facebook shares. An additional $3 billion in restricted stock units to be granted to WhatsApp's founders and employees that will vest over four years subsequent to closing. WhatsApp currently has 450 million monthly average users, of which 70 percent are active users on a regular basis.

WhatsApp currently generates $0.99 per year per use after the first year. Evercore reported that the approximate $42 per WhatsApp user suggests "a decades-long payback under WhatsApp's current business model." The analyst further compared the recent acquisition of Viber (approximately 2/3 the size of WhatsApp) to Rakuten for $900 million.

Sena continued, "Instagram and WhatsApp are #2 & 3 behind FB in all-time social downloads, according to our analysis. However, the ad-free-nature of these experiences does provide some growth support, and as devices and individuals become ever more connected, we suspect the ability for alternatives to scale will only increase. Comments by WhatsApp CEO, Jan Koum, that advertising tends not to work as well in messaging supports this view, which we think might boil down simply to the fact that the communication is between people who already know one another."

Shares of Facebook closed at $68.06 on Wednesday and are currently trading up 1.76% at $69.26.