How low can Facebook go?

Jun 05, 2012 by Paul Handley
Two weeks after the largest, most anticipated IPO in years, Facebook shares keep going down. And down. And down. And investors want to know how far they can go.

Two weeks after the largest, most anticipated IPO in years, Facebook shares keep going down. And down. And down. And investors want to know how far they can go.

During trade on Monday the shares hit $26.44, more than 30 percent below the price of $38, before rebounding slightly to $26.90.

"It is difficult to argue for owning the stock today," said Bernstein Carlos Kirjner in a research note Monday that added to the selling momentum.

Kirjner forecast a price of $25 over the next 12 months, but added that a real possible slowdown in Facebook revenue growth "will likely drive additional downside pressure on the stock beyond what is already reflected in our price target."

Other critics echoed that.

"There are some real signs that Facebook may be in real trouble and could turn out to be a disastrous investment," said Oliver Pursche, President of Gary Goldberg Financial Services, a New York money manager.

"We told people to stay away because we didn't and still don't know how it was valued," he told AFP.

By far the Internet's dominant social network, Facebook went public on May 18 in a $16 billion share sale, the second largest IPO in the United States ever.

The runup to the sale was marked by bubbly enthusiasm reminiscent of the dot-com era, to the extent that lead underwriter Morgan Stanley agreed to raise the offering price and increase the number of shares issued.

But the shares barely held above the $38 level on the opening day and have fallen ever since, delivering real and paper losses of some $4.6 billion to the new investors.

Price forecasts are all over the place, from $10 to the upper $40s, as more questions are being raised about the company's real potential to turn an audience of nearly one billion users into an advertising bonanza.

Research's $25 estimate takes note of the company's great potential but also its still-unproven ability to fully tap that potential -- whether it can make social network-based advertising as effective as, for instance, Google's search-based ads, and if it can do so as fast as many investors expect.

"We do not think it is likely that the issues associated with the effectiveness of social advertising will be addressed, or that upside from new opportunities will become materially clearer in a few quarters," Kirjner said.

"To the contrary, we believe that Facebook's revenue growth over the next twelve months will at best stabilize, and probably further decelerate."

Pursche said the selloff has nothing to do with the darkening clouds over the economic landscape or anything new learned by investors since the IPO.

Nor does it have much to do with the revelation that the underwriters quietly revised downward their forecasts of Facebook's earnings just days before the IPO.

Instead, institutional investors bought expecting an opening day price surge "because it is an exciting company. When that didn't happen, they have been dumping the shares, he said.

"The sentiment is very negative, the technicals are broken," he said.

"Real structural issues" over Facebook's earnings potential aside, Pursche said, fund managers are likely now looking to how their performance and portfolios will look the end of the second quarter, and are selling to minimize the damage.

"If you are a well-known fund manager, you probably don't want Facebook in your top 10 holdings" in the half-year report.

"I wouldn't be shocked if on June 30 it could be trading below $20."

Trip Chowdhry of Global Equities Research called the IPO "totally mispriced."

Valuations are "anywhere from $8 to $50. The price is all over the place," he said. "I think the IPO should have been priced from $10 to $15."

There are optimistic analysts out there, and more are recommending the stock as it falls.

But Pursche and Chowdhry both said the selloff could continue until the company convincingly clears up longstanding questions about its sources of revenue and its business direction.

"There is one thing that needs to answer," Chowdhry said.

"I think an investor will want to know what percent of current revenues are coming through their current shareholders," which include Microsoft and game-maker Zynga.

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User comments : 14

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nuge
4.2 / 5 (5) Jun 05, 2012
How come we keep getting updates about this company's share price on Physorg? This is a science website, right? If we get updates about FB on here then there should at least be updates about other companies too. I smell something funny going on.
Origin
2.3 / 5 (3) Jun 05, 2012
Market share interested readers are apparently more creditworthy readers than the physical nerds.
Osiris1
3 / 5 (2) Jun 05, 2012
I don't smell 'marketshare' here. Many users of that hackneyed term do not know the difference between it and fornicatin...and may know much more of the latter. What this may reek of is insider fraud. Lets just say that at the outset an 'in crowd' was the only group allowed to buy the stock, and buy they DID by converting 'stock options' in great blocks. That pumped the stock up inasmuch as the artificially low price of their market entry allowed great blocks of stock to be bought by inside manipulators. This happened to Caldera's IPO in the early bubble years before it 'acquired' bankrupt Santa Cruz Operation, renamed itself 'SCO Unix' and went after all linux users including its own customers in court. Caldera/SCO's case was micro$$ insider manipulation of a linux provider to predate on all linux providers. Those insiders would then start dumping the stock...got it fer nothin so its all gravy. Lots of options to insiders = a very low stock before it goes Chap 11. Penny stock
AWaB
not rated yet Jun 05, 2012
Osiris is right. After all of the dust settles, I think there will be quite a few people in prison. Too many insiders thought they could manipulate the general public, and did, to buy an overpriced stock. Now what happens is that a lot of people got screwed and they aren't happy. You can get away with screwing a few dummies, but when you screw a whole lot of them, they can affect who gets elected. You bet that there will be some pols running around throwing inside traders in jail for this.

On a side note, w/ the typical stocks in the market trading at a P/E of 10 to 20, that would put FB at less than $20/share. I hope you didn't buy it when it was high!
Noumenon
2.2 / 5 (10) Jun 05, 2012
I still don't get how this company could be worth $96 billion.
Vendicar Dickarian
1.7 / 5 (6) Jun 05, 2012
How come we keep getting updates about this company's share price on Physorg? This is a science website, right? If we get updates about FB on here then there should at least be updates about other companies too. I smell something funny going on.


Hmmm...you may want to crawl out from under that rock occasionally. The FB IPO is one of the top 10 stories worldwide, and has been for awhile now. It's all over every media outlet, all day every day. So, there's nothing funny going on. BTW, this article was filed under Technology/Business...and it's arguably one of the biggest stories of the last few years in...Technology/Business.
Cave_Man
5 / 5 (1) Jun 05, 2012
How come we keep getting updates about this company's share price on Physorg? This is a science website, right? If we get updates about FB on here then there should at least be updates about other companies too. I smell something funny going on.


Hmmm...you may want to crawl out from under that rock occasionally. The FB IPO is one of the top 10 stories worldwide, and has been for awhile now. It's all over every media outlet, all day every day. So, there's nothing funny going on. BTW, this article was filed under Technology/Business...and it's arguably one of the biggest stories of the last few years in...Technology/Business.


I think the point is that anyone with a brain who comes to physorg doesn't give 2 shits about facebook.

I agree Noumenon, however it's likely worth $96bil theoretical dollars, like on the Southpark episode.
kaasinees
4 / 5 (4) Jun 05, 2012

I think the point is that anyone with a brain who comes to physorg doesn't give 2 shits about facebook.

I agree Noumenon, however it's likely worth $96bil theoretical dollars, like on the Southpark episode.

Is that the episode with the chicken on the roulette wheel on the end? Its a funny episode and very true.
Vendicar_Decarian
3 / 5 (2) Jun 05, 2012
What is this face book thing, anyhow?

Isn't it some kind of salad dressing?
Intensero
not rated yet Jun 05, 2012
I shorted the stock. Simple valuation.

I agree whats the point of posting this to physorg?
Vendicar_Decarian
3.7 / 5 (3) Jun 05, 2012
If you go to the very top of the page, you will get your answer.
Intensero
5 / 5 (1) Jun 05, 2012
If you go to the very top of the page, you will get your answer.


LOL. Thanks, sometimes its easy to miss those little things. I didn't realize this was the "business" section tech. I clicked on tech section in general.
chardo137
5 / 5 (1) Jun 06, 2012
Facebook is EVIL!
Long live google plus...facebook, not so much.
gmurphy
not rated yet Jun 06, 2012
It seems that controversy stalks Zuckerberg at every step.