Facebook Inc (NASDAQ:FB) has been getting a beating lately. The stock is down close to 50% since the company’s IPO in late May. Today, the company finally got some good news. Cantor Fitzgerald has initiated coverage on the social media giant. Not surprisingly, the company rates Facebook Inc (NASDAQ:FB) as a buy. However, to Cantor’s credit, the target price is only slightly above the current market value of Facebook. Facebook Inc (NASDAQ:FB) closed today at $22.59, Cantor thinks Facebook is worth $26. We sum up their basic analysis below:

Cantor Fitzgerald buy on Facebook DCF model for $26

Investment Summary:

Cantor is initiating coverage of Facebook Inc (NASDAQ:FB) with a BUY rating and $26 target. Facebook has become the foundation of the social Web, leveraging The Social Graph to build the largest online network and generate significant value for users/developers/advertisers. Facebook is still in its early phase of monetization, and despite its enormous reach, time spent, targeting capabilities and social context, it accounts for only ~6% of global online ad spending, by their estimate.  Cantor states ‘we’re positive on the stock long-term despite a botched IPO and a massive lock-up expiration that’s likely to keep a lid on FB short-term.’
Massive base of monthly active users (MAUs)

Facebook has changed the online advertising landscape by bringing something that only broadcast TV has traditionally done — mass reach. Facebook boasts over 950M MAUs globally, a user base that’s growing at ~30%/yr and spending over 400 minutes per user per month.

Sponsored stories is just the beginning of ads with social context

While the bulk of Facebook’s revenues are generated from relatively untargeted ads, the launch of sponsored stories on both mobile and PC has demonstrated early success, generating run-rate revenue of over $1M/day. Facebook’s long-term success is predicated on its ability to introduce new ad formats that leverage social context to further drive growth on the desktop, but especially on mobile.

Branded advertising

At $450B TAM, is a wide-open opportunity. They see significant opportunities ahead of Facebook, largely from brands moving online seeking mass reach and user engagement and from the explosion of mobile advertising in the next 2-5 years.

Valuation/Risks

At $21.87, FB is trading at 8.7x and 16.6x their FY:12 estimates for revenue and EBITDA, respectively. Their $26 target is based on a 5-year DCF, implying multiples of 10.1x and 19.4x, respectively. Risks include failure to monetize mobile, lack  of effectiveness of Facebook Inc (NASDAQ:FB) ads, and insider selling following lock-up expirations.

Cantor is initiating coverage of Facebook Inc (NASDAQ:FB) with a BUY rating and a $26 price target. As the preeminent social networking site, Facebook enables over 950 million monthly active users globally to connect with their family and friends, discover what is going on in the world around them, and share and express what matters to them to the people they care about. Facebook has become the foundation of the social web, effectively leveraging The Social Graph (connections between people and their friends and interests) to generate significant value for users, developers, and advertisers. They believe Facebook is still in its early growth phase, and given its enormous reach and time spent statistics, coupled with relevance, targeting, and social context for advertisers, they believe the company will capture increasingly higher percentages of high value branded advertising dollars, and continue to build out the Payments revenue stream.

Facebook Inc (NASDAQ:FB) completed its initial public offering (IPO) on May 17, 2012, at $38 per share.

Disclosure: No position in any Securities mentioned