How Low can Facebook (FB) Go?

Facebook (FB) shares hit a new low Tuesday, as the recently listed stock tumbled another 6.2% to $21.71 a share, with 48 million changing hands. Three trading sessions after the No. 1 social-network reported earnings that showed decelerating user growth, concerns about share valuation are far from over.

Facebook has now lost nearly 43% of its value since its May-18/$38 a share IPO price. The double-digit slide in share-price has reduced the co.’s market cap to less than $41 billion – more than half its IPO launch value of $100 billion.

There seemed to be three factors hanging over the stock Tuesday.

The first was a report from Bernstein Research analyst Carlos Kirjner that valued Facebook’s display advertising business at only $19 a share.

While Kirjner lifted his rating on the stock to “Market Perform” from “Underperform”, he cut Facebook’s 12-month price target to $23 from $25:

[via Forbes] ““We believe that  Facebook is worth $19/share (10 times estimated 2014 EBITDA plus cash) valued just as a display advertising business gaining market share due to its fundamental competitive advantages based on scale, user data and identity. These $19/share do not assume upside from its social advertising capabilities and do not give Facebook any credit for upside from yet-to-be-defined businesses based on its distinctive assets, such as its social graph. Because these “upside” opportunities are still highly uncertain, we value them at $4/share based on our sizing of such upside opportunities and our judgment of the probabilities they will come through, leading us to our $23/share valuation.”

The second worrying factor is what happens on Aug. 16 when a lock-up period expires. Over 211 million shares could be added to Facebook’s current float of 484 million shares. Up to 355 million shares may be added to the float in October. Over the next two quarters, over 1.7 billion FB shares will become freely tradable.

Kirjner warns that the lockup’s expiry may pressure the stock for the next few months. He suggests that a buying opportunity would arise when the stock dips below $20:

[via Forbes] “While these are well known facts and should (in theory) be already reflected in the stock price, history suggests that there is a good chance of transient pressure on the stock price as liquidity increases abruptly. We would see a buying opportunity if FB were to trade around or below $19/share.”

Finally, a commerce site called Limited Run, late on Monday publicly called into question Facebook’s user-number claims.

According to Reuters, the Internet startup claimed that 80% of its ad-clicks on Facebook came from bots, and only a fifth from genuine users.

Limited Run, which provides a store platform for recording labels, musicians and artists, said that it was deleting its Facebook page. The company went so far as to call Facebook “scumbags.”

Even with its 6.2% drop Tuesday, Facebook shares still trade at more than 33x Forward P/E, versus Google’s (GOOG) 12.8. Does Facebook deserve to trade at such a premium? We don’t think so, especially since its advertising efficacy, which accounts for almost 90% of the Menlo Park company’s revenues, has again been questioned – reviving doubts about FB’s ability to sustain its rich valuation. So there may be more downside for Facebook from current levels.

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About Ron Haruni 1068 Articles
Ron Haruni is the Co-Founder & Editor in Chief of Wall Street Pit.

4 Comments on How Low can Facebook (FB) Go?

  1. I am not too smart at investing or anything but i know some professional people who are really good at this stuff, we were talking and they said facebook is realistically worth $2 a share max. I think as far as all this social media goes, i prefer to use the telephone at most or just go to your local church or bbq get together. I have no idea why people gamble away there hard earn savings in such things, when they can just use that money to enjoy life and do the things that they truly want to do. And if your one of those type of people who just dont have any desire for materialistic things there nothing more honorable and enjoyable then to donate it away to a good cause.

  2. How low can any vapor stock go? A: Zero

    But, hey! FB SHEEP take heart. Rumor has it that the FB execs that traded millions of their shares at the IPO for billions of your dollars have invested in a wool looming operation. They are knitting underwear to sell you for the winter months made from the shearing they gave you.

  3. FB need to start behaving like a viable business and charge users a fee.
    When you are not paying for a service, you are not valuing it’s service. I am talking about a nominal fee, after all consumers pay hundreds of dollars on a monthly rate for cable television, cell phone, netflix, and other similar social services.
    If the fear is that users will skip FB town, fuhgettabout it, we like the neighborhood, and want to stay connected to our neighbors. I and other users, have invested way too much time, and personal info, including photos, thoughts, values.

    FB is quite a valuable WORLD commodity, it need to now charge an affordable fee for this unique undervalued company.

  4. If 80% of the click-thru revenue is coming from FB-owned bots as quoted in this story:

    1) How long until Facebook is procecuted for securities fraud by the SEC?
    2) Then ad revenues are overstated by 500%… and the real revenues and value should be easily 1/5th of the current price, and likely less.

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