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In the latest twist of Wall Street irony, Facebook (NASDAQ:FB) shares climbed higher Wednesday morning as the broader market sold-off. At the moment, the social-media giant appears to be finding support around $31 per share.
Needham & Co., a nationally recognized investment banking and asset management firm, announced it started coverage on Facebook with a Buy rating. It was a surprising development as Facebook shares have dropped almost 20 percent in the past two trading days. The firm said that the internet company should be valued based on its revenue potential from users spending several minutes on the website. Facebook is one of the most popular websites on the internet with over 900 million users. Roughly 14 percent of the total time spent online by the world is on the social-networking site. According to Needham, Facebook’s revenue potential is $14 billion on a global basis and $6 billion in the United States.
In a note to clients, Needham explained, “Facebook’s global platform with long engagement times gives it a unique strategic position to generate revenue from global advertisers, payments, services, etc. It also represents a meaningful barrier to entry,” according to Reuters. The firm has a $40 price target on shares.
While the Facebook saga is still in the early stages of Wall Street trading, its valuation continues to remain a topic of discussion. When the IPO priced at $38 per share, it awarded Facebook a hefty valuation of $104 billion. As seen below, using a common measurement such as the price-to-earnings ratio, Facebook has a lot of hype to live up to.
Major tech companies and their respective P/E ratio:
LinkedIn Corp. (NYSE:LNKD): 615.9
Facebook (NASDAQ:FB): 101.9
Google Inc. (NASDAQ:GOOG): 18.1
Apple Inc. (NASDAQ:AAPL): 13.6
Zynga Inc. (NASDAQ:ZNGA): -5.2
Groupon Inc. (NASDAQ:GRPN): -46.5
Pandora Media Inc. (NYSE:P): -70.8
Facebook received its first buy recommendation from Wedbush Securities Inc. in early May with a price target of $44 per share. The firm explained, “More users should drive more usage, which in turn should drive increased advertising revenue share. Facebook will capture an increasing percentage of spending on offline advertising, while growing share of online advertising as well, as usage continues to increase and advertisers become more comfortable with the cost-effectiveness of online advertising,” according to Bloomberg.
However, due to concerns over the appeal of online ads and the recent General Motors (NYSE:GM) incident, other investment firms are not as confident on Facebook. S&P Capital IQ started coverage on Facebook with a Sell rating and placed a price target of $30 on shares.
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