Facebook Inc (NASDAQ:FB) has earned itself a buy recommendation from some of the world’s leading investment banks (which also under-wrote the ipo); but some are still recommending a cautious position on the stock, Wall Street Journal notes.
The investment banks issued their reports over the controversial stock, for the first time since its Initial Public Offering (IPO) 40 days ago. Law prohibited analysts from the 33 firms that served as managers and co-managers on the IPO from publishing recommendations.
The Weary
Barclays PLC (NYSE:BCS) is one of the companies that recommended a cautious approach to Facebook stock, and gave an “equalweight” rating, with a $35 price target. The analysts from Barclays pointed to Facebook’s market leadership in both social media and broader online advertising as good reasons to add a premium to its current market price.
Barclays also stated that Facebook Inc (NASDAQ:FB) operates at margins that are significantly higher than the majority of its competitors. Nonetheless, Barclays did point out some obvious risks associated with Facebook’s long-term advertising saying, “Facebook does not derive any meaningful revenue from its increasing mobile usage and its ability to do so going forward is unproven.”
Bank of America (NYSE:BAC) expressed caution to Facebook’s pricing, pointing to concerns over revenue stating, ” Facebook is in the midst of a mobile usage transition, and thus Bank of America is cautious on Facebook’s revenue trends until new mobile advertising revenue models start driving the top line.”
Citigroup Inc. (NYSE:C) recommended a neutral position on the stock. The company put a price target of $35, stating that Facebook Inc (NASDAQ:FB)’s high growth potential is already priced in its current market price. The comment also highlighted challenges in monetizing the company’s mobile usage.
The Optimists
Goldman Sachs group, Inc. (NYSE:GS) analysts, representing one of the lead underwriters for the Facebook IPO are extremely optimistic on the company. They placed a Buy rating for the stock and a price target of $42, stating, “Social platforms are helping to usher in the next era of the web and given its user base and leading social platform, Facebook is poised to dominate this next phase of the Internet.”
Morgan Stanley (NYSE:MS) another underwriter is bullish. The company has placed a 12 month price tag of $40 for the stock and rated it as “overweight”. Analysts state, “We believe that Facebook is uniquely positioned to leverage its large and highly-engaged user base to monetize the mobile Internet,” adding, “the bank strongly thinks the monetization gap that closed on desktop Internet will ultimately close on mobile Internet, at which time Facebook’s focus on user utility may appear prescient,” Wall Street Journal reported.
Although a Chinese firewall exists in investment banks, we must note that it would be highly embarrassing for Morgan Stanley to give a low price target. Morgan Stanley was heavily criticized for its role with the IPO and for raising the price target to $38. It was almost a guarantee that the target price would be above $38.
RBC Capital Markets had a similar price target to Morgan Stanley, and expects Facebook to outperform. It pointed to Facebook’s leadership in Social Media and number of active users worldwide as a major competitive edge. RBC further said, “The company’s significant value lies in the user data it collects around contributed information, interactions between users, and activity around the Web, which can be used for both advertisement targeting as well as to push content to users.”
Facebook shares are currently down 2.4% to 32.30, at the time of this writing.
