Analysts STOMP on Facebook Rally
Analysts from the investment banks that took Facebook (NASDAQ:FB) public started their review of the stock with a cautionary word, sending shares tumbling. Underwriting banks began publishing their comments early Wednesday, with the consensus being that shares of the social network may need a year or more before regaining the offering price. According to Bloomberg data, average estimates said Facebook shares will increase to $37.95 over the next year, 5 cents less than the initial price set when the stock opened for public trading on May 18.
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Several banks issued “neutral” ratings for Facebook, though Goldman Sachs (NYSE:GS) initiated its coverage with a “buy” rating and a $42 price target, which was $4 above Facebook’s IPO price and 27 percent above Tuesday’s closing price of $33.10. RBC Capital Markets (NYSE:RY) offered a similarly positive opinion, starting coverage with an “outperform” rating and a $40 price target.
Lead underwriter Morgan Stanley (NYSE:MS) gave the stock an “overweight” rating and a 12-month price target of $38, the same as the IPO price. Morgan Stanley’s Scott Devitt wrote that Facebook had three key priorities: aggregation, product initiatives, and monetization, in that order. He was also fairly positive about the social network’s mobile monetization capabilities. “Despite recent concerns about mobile, we strongly believe that the monetization gap that closed on desktop Internet will ultimately close on mobile Internet, at which time Facebook’s focus on user utility may appear prescient,” Devitt wrote.
Barclays (NYSE:BCS) initiated its coverage with an “equalweight” rating and a $35 price target, saying that while the social network had long-term opportunity in online advertising, there were also significant risks. “Facebook does not derive any meaningful revenue from its increasing mobile usage, and its ability to do so going forward is unproven,” it said.
Bank of America (NYSE:BAC) gave the stock a neutral rating and $38 price target, again citing the potential of hitches in making a smooth mobile transition. Citigroup (NYSE:C) also started with a neutral rating, with a $35 price target. Facebook will soon have one billion monthly average users and 600 million daily users, which are “startlingly impressive metrics,” Citi said, but added there were still big challenges involved with monetizing mobile usage.
Wednesday ended the “quiet period,” or the 40 calendar days following the IPO, during which analysts from the 33 firms that were involved with the trading launch process were prohibited from publishing recommendations.
Among those who had initiated coverage earlier, the average price target is $37.80. Susquehanna International Group gave the stock an outperform rating with a $48 price target, while on the other end, Bernstein Research added an underweight rating and a $25 price target.
Shares of Facebook (NASDAQ:FB) closed lower 2.63% at $32.23 per share Wednesday.
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