As if things couldn’t get any worse for Facebook Inc (NASDAQ:FB) , the social network giant now faces reports that its performance and worth was overly hyped prior to its IPO. This is a common technique for new companies on the market, and Facebook is no different.
In May, WedBush, a research company, released a report regarding the upcoming Facebook Inc (NASDAQ:FB) IPO, which stated that the stock would outperform. The research this report was based upon was slightly outrageous, and the report exclaimed that Facebook Inc (NASDAQ:FB) would reach a price target of $44 per share. This target has been dismally missed, as Facebook Inc (NASDAQ:FB) currently trades at $21.64 per share. Its initial IPO price was $38 per share, and the stock has continually tanked ever since it went public.
There has been much talk in recent years about disruption and trying to pick companies that will disrupt their industries. The debate continued at the Morningstar Investment Conference as Bill Nygren of Oakmark Funds faced off with Morgan Stanley's Dennis Lynch. Q2 2021 hedge fund letters, conferences and more Persistence Morningstar's Katie Reichart moderated the Read More
The report contained many other misleading facts and bits of information. WedBush’s model expected that 43% of the world’s population would be using Facebook as a means of interaction, and communication. Another fallacy in the report is the claim that Zynga Inc (NASDAQ:ZNGA), Facebook’s online gaming development partner would experience exponential growth, thus generating a large portion of Facebook’s revenue. However, Zynga Inc (NASDAQ:ZNGA) stock shares seem to be following closely in Facebook’s shoes, as they too have continued to bleed value onto the street.
The analyst who published the research admitted to the NY Times that the stock was hyped before the IPO, saying,
“The underwriters (and the media) did a great job of hyping Facebook leading up to the I.P.O., and the sell-side (including me) did a great job of hyping if after.”
By hype, he is referring to the fact that his report claimed Facebook would see a surge of growth, totalling 200% from 2013 to 2015. There are no facts to substantiate this claim, as Facebook has only been growing at a rate of 30% per year.
ValueWalk warned about the WedBush report on Facebook Inc (NASDAQ:FB) stock, prior to all of this in a previous article. We told investors to be wary of the hyped report from WedBush, claiming Facebook to be a bargain. We tore the sell side report apart. Now it would seem that we were right in that respect, as even the analyst who released the report, admits it was total hype. It was aimed at selling the stock, and it successfully accomplished that goal, with no regard to the investors who lost millions in the nearly worthless shares. But as we have stated before….Always be cautious of optimistic analysts