Facebook Inc (NASDAQ:FB) is having a great run with its shares up by over 7% year to date, but short-seller Andrew Left of Citron Research believes the stock is too expensive, and hence, he is betting against the stock. Left believes the social media giant will lose market share to rival social media platforms such as Snapchat.
In a phone interview with Bloomberg, Left said he is borrowing the shares and selling them. It’s a trading strategy in which the trader gains if the stock drops. Backing his theory, Left said he doubts Facebook’s ability to earn revenue from ads and cited concerns about the shift of young users to other social platforms.
“Advertising has to get related into consumer spending,” Left said. “Of course they’re going to be able to monetize Instagram and Facebook video and everything else, but you can’t discount viewership of YouTube and Snapchat. Anyone who has a teen knows you can’t discount the relevancy of Snapchat.”
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Left is known for his bearish stance on pharmaceutical giant Valeant Pharmaceuticals. In October, he released his bearish analysis of the pharmaceutical giant just before its shares dropped 40% over concerns about its drug marketing practices. Prior to this, Left operated his stock commentary site.
Bulls are getting it wrong
Left has not given any target price on the stock but states that Facebook will lag rivals in the S&P 500 technology group in 2016. Left believes that Facebook Inc (NASDAQ:FB) shares are running out of “incremental buyers” and that its shareholder base is getting crowded. Also he said bulls are wrongly estimating threats from rivals.
“I’m not saying this is Twitter, but as soon as Twitter lost users, nobody cared about revenue anymore,” Left said. “It’s a company that was built on the network effect — it can take you lower just as much as it can take you higher.”
Facebook Inc (NASDAQ:FB) shares are trading at 71 times its trailing 12-month earnings. The company’s current market cap of over $325 billion makes it one of the 10 biggest companies globally. For the first quarter, the social media giant reported adjusted earnings of 77 cents per share, beating analyst estimates by 23%. Revenue for the quarter came in at $5.4 billion, up 636% since 2011.
“People are discounting the actual risks of Facebook, which by far does not have a monopoly on social networking,” the short-seller said. “The stock could underperform the rest of the technology stocks this year. It’s tough to say what the stock is going to do, but they’re losing their relevancy.”
On Monday, Facebook Inc (NASDAQ:FB) shares closed down 2.29% at $113.95.