Of all of the reports released today, the first day after the Facebook Inc (NASDAQ:FB) quiet period, just one of the many reports gave Facebook Inc (NASDAQ:FB) a negative rating.Most of today’s reports called for investors to hold or even to buy the stock.
The report came from BMO Capital Markets, and was written by Daniel Salmon. It sets an under perform rating for the social networking company, and puts a target price of $25 on the firm’s stock. That rating comes alongside a market perform rating for the entire industry.
The major depressant on the social networking company’s stock is the effectiveness of its advertising. The firm cites ad industry opinion on the value of Facebook’s
advertising model. Particular weight is placed on the opinion of attendees at the Cannes Advertising Festival.
The article reports that opinion at that festival were mixed, and very few were entirely convinced of Facebook’s ability to monetize its user base in a way that justified the high valuations that had been placed on the stock.The industry’s opinion is obviously one of the more valuable metrics of advertising effectiveness.
Other worries were ones generally prevalent in a critique of Facebook Inc (NASDAQ:FB). Slowing user growth is worrying, though expected as the number of users reaches $1 billion, and also has a depressing effect on perceived value. The move to mobile and the lack of revenue from that space is one of the most disturbing trends in the company’s future.
Facebook Inc (NASDAQ:FB)’s central conflict has always been one of balancing revenue with user experience. That is the problem with preemptive advertising on mobile platforms, but also prevents them from making changes that might increase the firm’s value.
One of the positive guidelines given in this report, is the importance of rich media and video advertising. That form of advertising is much more effective according to several surveys, but it is also much more intrusive. Executives at Facebook worry that it might break user experience.
The hope for a third party Facebook advertising model is also a positive at the company. The company launched its first such ads on its partner Zynga’s website earlier this week.
The report sets Facebook’s expected non-GAAP EPS at 0.84 for 2014, and sets the firm’s multiple at 30X. That leads to target price of $25, which is on the lower end of such targets since the firm’s initial public offering.
Facebook faces several problems going ahead, but no research firm is advocating a Facebook will fail approach. Analysts at BMO are simply suggesting that the firm’s stock may be over valued at its current price, and, despite drops since the firm’s IPO, still bases price on very high expectations.
Facebook Inc (NASDAQ:FB) is not an ordinary company. It is comparable only to Google Inc (NASDAQ:GOOG), and Yahoo! Inc. (NASDAQ:YHOO) in its business model, yet it remains almost entirely separate from them in reality.
The market today seems to agree with BMO’s report over the others. Shares are down 1.81% to 32.50 at time of writing. Despite what some may have said about a pop after the quiet period, investors are still wary of the social network.