Tuesday, September 4, 2012

Facebook Inc (FB) Shares Touch New Lows on Bleak Outlook

Shares of social networking site Facebook Inc (NASDAQ:FB) were trading down again on Tuesday as more analyst downgrades make their way into the market.

The stock fell to a new low of $17.59, down 2.5 percent with analysts citing the threat of more share lockup expiry in the short and medium terms.

Similar to what had happened last Friday Tuesday’s today’s action was also centred on the threat of the expiration of lockups on insider share sales, which began last month.

JP Morgan’s Doug Anmuth was the only analyst who retained  a bullish stance on the stock reiterating an Overweight rating though he cut his price target to $30 from $45, citing the lockups, but urging investors to stay the course:

Can FB Rebound After The Recent Slump? Find Out Here

Street focus remains on heavy lock-up expirations in October and November, but for those willing to look out a bit further we believe the risk/reward is attractive with Facebook trading at 7.5x 2014E EBITDA.”

Anmuth thinks the company’s revenues from advertisements will pick up this second half of the year, helped by the company’s “sponsored stories” format, though he cut his estimates for payment revenue, citing changes in the nature of online, social gaming, where Zynga Inc(NASDAQ:ZNGA) is struggling.

“The dynamics around social gaming have changed, leading to lower monetization for Facebook. Existing and new Web games now operate in a more competitive space, and users are rapidly shifting to mobile devices where Apple and Google control app distribution and payments. Facebook has also yet to develop other Payments verticals beyond games. We now project a 4% decline in Payments revenue in 2013—flattish thereafter.”

Anmuth also raised his ad revenue estimate for this year to $4.14 billion from $4.12 billion, while cutting his payments estimate to $832 million from $869 million, for a total of $4.97 billion, down from $4.985 billion. That is still better than the Street consensus of $4.92 billion and 49 cents.

Morgan Stanley’s Scott Devitt today also reiterated an Overweight rating, but cut his price target to $32 from $38, citing both risks from rising mobile usage as well as “declines in user engagement.”

In a rather mixed note this morning, Pacific Crest’s Evan Wilson notes that Facebook is “getting more aggressive with monetization,” but he thinks that such a development is “more likely a sign of weakness than strength.”

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