Monday, September 24, 2012

Holy Crap! Facebook: Headed To $15?




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…

Find out more at http://www.forbes.com/sites/ericsavitz/2012/09/22/facebook-headed-to-15/

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