Bernstein Research analyst Carlos Kirjner seemed to provide some good news for Facebook (NASDAQ:FB) shareholders Tuesday when he upgraded his rating on the stock from “underperform” to “market perform.”
Didn’t matter. Facebook stock has dropped another 6% to a new low around $21.75, continuing FB’s death spiral since coming public in May at $38.
In fairness, Kirjner’s coverage was a mixed bag. While he upped his rating, he actually lowered his price target on FB shares from $25 to $23. And he said while there’s other potential upsides to consider, he values Facebook’s display ad business at just $19 per share.
The reason? Kirjner is assuming the new social ads and mobile strategies will take quite a while to move the needle.
This makes sense. On Facebook’s earnings call, the message was clear that the company is taking a cautious approach with its new ad formats. After all, Mark Zuckerberg is obsessive with the user experience, trying to avoid pulling a MySpace at all costs.
Meanwhile, Facebook faces some other issues. For one, macroeconomic headwinds loom — a big part of FB’s business comes from the U.S. and Europe, which are seeing declines in growth. In such a slow economic climate, it’s easy for companies to cut back on cutting-edge marketing campaigns.
Plus, Kirjner cited the upcoming lock-up expiration, saying it “may pressure the stock for the next few months, potentially creating attractive entry points.”
The huge drop still hasn’t given Facebook adequate breathing room on the valuation side, either, with FB shares trading at 76 times earnings — earnings that are falling quick!
Investors should continue to avoid this train wreck until the dust has settled.
Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned securities.
A long-time follower of the IPO scene, back in 1999 Tom started one of the first sites in the space called WebIPO. It was a place where investors got research as well as access to deals for the dot-com boom. Tom also wrote the top-selling book, Investing in IPOs. In it, he covers all the aspects of analyzing an IPO, such as reading the prospectus, detecting the risk factors and understanding some of the arcane regulations. But don’t worry — if that process is too intimidating for you, thankfully Tom will do the legwork for you right here in the IPO Playbook blog.
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