Facebook Inc (NASDAQ:FB) opened with a downside gap today, as analyst firm BMO Capital Markets Corp raised a red flag on the social network’s revenues on fears that businesses may not be spending enough for advertising on the site. The research firm cut its price objective for Facebook Inc (NASDAQ:FB) from $25 to $15 and has a Sell rating on the stock.
The fears seem to be echoed by Internet market research firm EMarketer Inc, who drastically trimmed its earlier outlook on sales at Facebook Inc (NASDAQ:FB) this year by $1 billion, from $6 billion to $5 billion. These revised estimates follow from a lower outlook for advertising growth – earlier, EMarketer estimated that revenues would grow 88 percent in 2012, but this is now reduced to 36 percent. Debra Aho Williamson, analyst at the firm, says, “Sales haven’t been growing as fast as we and others had expected. There is still hesitation about the effectiveness of the advertising, and about how much the advertising is worth.”
In this context it would be useful to survey a slew of other analysts’ reports issued on Facebook Inc (NASDAQ:FB) today.
Bank of America Merrill Lynch (BAML) has a Neutral rating on the stock and has lowered the price objective to $23. It says that though new ad formats are taking shape, stock supply overhang, due to lock-up expiration, is still a matter of concern. Past selling trends on expiration dates have convinced BAML that there is risk of selling pressure at future dates. The firm’s analysis of new advertising initiatives, such as Sponsored Story ads, Sponsored Search Results, and the Facebook Ad Exchange concludes that these could see results in 2013 and 2014, but there is not much near term visibility.
Research firm Stifel Nicolaus has a Hold rating on Facebook and has not issued a price target. The firm also anticipates selling pressure due to supply from lock-up expiration. They are cautious about the monetization challenges facing social/mobile media, though they are convinced about the huge potential of the FB platform and its current tempting valuation. Other positives the firm sees are the current focus of the social network on monetization of its resources and new initiatives, such as mission. Facebook has announced several initiatives recently: 1) Reach generator, 2) ROI measurability/Studio Edge, 3) Email address @facebook.com, 4) Face.com, 5) Integration with iOS 6, 6) Mobile app Improvement, 7) Like button–>Recommend/Want button, and 8) Promoted News Feed for non-fans. Though the jury is out on the impact of these initiatives, there is, according to Stifel Nicolaus, huge potential for new businesses that could unfold in the future, such as e-commerce, smartphones, and gaming.
PiperJaffray is Overweight on the stock, and have a price target of $41.00. Their view is that the stock is an excellent long-term buy, given its huge discount to future potential growth. In the firm’s view negative sentiment has probably peaked after the Q2 earnings report, though it is tough to call a bottom. The likely launch of the Want button may be a major positive for the company, as is also better performance from the mobile business after the positive reception to its mobile-sponsored stories. Of course, lock-up expiration apprehensions remain on the table, but PiperJaffray cites statistical analysis of past IPOs and their expirations, and say that “it is unlikely shares will be heavily impacted.”
Piper notes that investors are likely to pay close attention to the lockup schedule for Facebook insiders with the assumption that it may impact shares of FB. We note that the first lockup expires in mid-August. However, the biggest lockup (>50% current diluted share count) expires in November, which is likely to have the most significant impact on shares, if any.
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