Facebook’s Valuation Reset Might Not Be Over

Shares could have at least another 20% to fall

   

Facebook (NASDAQ:FB) stock, which took a perilous fall Wednesday to continue its post-IPO plunge, basically were breaking even around midday Thursday.

After dropping nearly 36% since reaching opening-day highs around $45, might FB shares finally have found its footing? InvestorPlace‘s Rick Pendergraft thinks it’s possible; that the opening of FB options might have begun to establish some support levels.

However, to others, it still looks like Facebook stock could see further deterioration.

According to Bloomberg data, Facebook’s valuation still is not in line with its industry peers, and would need to fall about another 20% to be on par with other Internet businesses.

Facebook currently trades at 81 times earnings, which clearly is far ahead of a number of other top Internet stocks:

Company Ticker P/E Ratio
Priceline.com PCLN 29
Google GOOG 17
Yahoo YHOO 17
eBay EBAY 16

The only major Internet company that has a higher multiple than Facebook is Amazon.com (NASDAQ:AMZN), which trades at a whopping 173 times earnings!

True, a company can sell at a premium valuation if it can grow at a hefty rate, but confidence in Facebook isn’t exactly high on that front. Facebook recently has seen a deceleration of its revenues, and during the IPO roadshow, a Morgan Stanley (NYSE:MS) analyst lowered the guidance for FB’s second quarter and full year.

One problem is that Facebook’s traffic is rapidly moving toward mobile, which many companies are finding difficult to monetize. But Facebook’s payments business also might be an issue. Business Insider’s Henry Blodget has said FB could experience a slowdown because of the problems at Zynga (NASDAQ:ZNGA), which accounts for most of Facebook’s payments business.

Also, let’s not forget that Facebook’s CEO and co-founder Mark Zuckerberg has made it clear that he is not interested in short-term results. In other words, if revenues plunge because of mobile, don’t expect him to negotiate quick moves just to turn things around.

Which means it’s less likely that results will prop up the P/E, and more likely that the valuation (and stock price) could continue its plunge.

Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “The Complete M&A Handbook”, “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/ipo-playbook/facebooks-valuation-reset-might-not-be-over/.

©2014 InvestorPlace Media, LLC

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