Facebook shares have
rallied 29% over the last three weeks, aided in no small measure by a
confidence building appearance by CEO Mark Zuckerberg at the recent TechCrunch
Disrupt conference in San Francisco. On
Monday morning, the stock will face a serious rest of its resiliency.
This weekend’s edition of Barron’s features a cover story
that declares bluntly that Facebook is worth only $15 a share – that would be a
34% drop from Friday’s close at $22.86. Keep in mind, thought that the stock
even after the recent rally is down almost 40% from the company’s $38 IPO price
in May. The reason for the bearish
stance are familiar – I’ve written about them repeatedly myself – but remain
deeply concerning.
For starters, Facebook remains an expensive stock. Based on current Street estimates for this
fiscal year, the stock trades for 47x earnings. Google on the same basis trades
for about 17x. Apple? 16x. The situation is similar if you value the company on
a multiple of revenues. FB trades at about 10x this year’s revenues. Google is
at 5.7x. Apple trades at 4.2x.
Problem #2, which has been widely discussed, is the fact
that a huge number of insider shares are going to be freed of lock-up
restrictions in the months ahead, setting the stage for a huge increase in the
stock’s float – and new pressure on the stock price.
Problem #3 is…
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