New Analysis
Shares in Facebook traded down again Tuesday. The stock lost another 5.7 percent, continuing its slide from the IPO price of $38 in May to $20.40, roughly a 50 percent loss.
Despite the reduction in price, the stock is still not cheap. The current price-earnings ratio—computed using earnings for the last 12 months—is still quite high at 45. Other ratios, such as price to book and price to sales ratios are also too high for a company that is not delivering on growth.
Case in point was another deceleration in revenue in Q2 2012: The Palo Alto, Calif., company reported growth of 32 percent, but the quarter was the sixth consecutive quarter where growth slowed and it was the lowest growth for Facebook on record.
“To justify the stock price of $25, Facebook should be growing revenues in excess of 150%,” says a report by Trip Chowdhry, an analyst with Global Equities Research. “And management is totally clueless how to grow revenues in excess of that.”
Some other analysts still like the stock because of the long-term prospects: “We continue to like FB as a call option on improved, long-term monetization,” writes Brian Nowak with Nomura who has a buy rating and a target price of $31.50.
Given Superior Knowledge, Insiders Might Sell on Thursday
No matter how smart an analyst is, insiders still have an advantage when it comes to gauging their company’s health. This is why employees who got allocated some Facebook shares in the IPO in March have to wait until Thursday this week to be able to freely trade their shares.
According to Bloomberg data, there are still 212 million shares that are not part of the free float and belong to insiders. Given the currently less-than-favorable developments, those insiders might opt to sell on Thursday, like those of Groupon, whose stock price slumped 48 percent since the lock up ended on June 1.
Groupon stock slumped another 27 percent Tuesday after reporting disappointing earnings Monday after hours. Earnings beat estimates, but included a large one-time gain. Revenues missed estimates and the company gave guidance for lower revenue expectations in the third quarter. The company still has a market capitalization of $3.6 billion but a price/earnings ratio cannot be computed because the earnings for the trailing 12 months are negative. The stock is now down 72 percent since its Nov. 3, 2011, $20 IPO price.
Morgan Stanley Lead Underwriter in “New Internet” Names
The investment bank Morgan Stanley brought Facebook, Groupon and Zynga to the market. Zynga is also down 70 percent since its December 2011 IPO. According to aggregated Bloomberg data, those three names combined lost $60 billion in market capitalization since their first offerings to the public.
According to an article in Germany’s daily Frankfurter Allgemeine Zeitung, this is no surprise, as banks treat selected clients and themselves first and then leave the retail clients to fend for themselves: “Shortly before the IPO, Facebook managers told the book-runners about the weaker than expected revenues. The analysts reduced their estimates and warned selected clients but kept telling the public to buy,” says the article.
The article further notes that high-profile insiders such as PayPal founder Peter Thiel and Russian billionaire Yuri Milner sold most of their allocation on the first day of the offering whereas the public was buying. Goldman Sachs also sold double as many shares as initially planned and the founder Mark Zuckerberg himself made $1.2 billion in the IPO.
A representative of Morgan Stanley could not be reached for comment Tuesday.
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