(By Fred Dunsel) Last Friday, Facebook Inc. (NASDAQ:
FB) continued its weekly decline to close at $27.10, a 2.2% drop for the week. The stock, which is now trading at 28.7% below its IPO price of $38, hit an all-time low of $25.52 last Wednesday. With a current market cap of $58 billion, pre-IPO speculation of a $100 billion valuation only served as reminder of a cruel joke whereby media hype has overtaken market fundamentals.
The gains made in the latter half of last week were primarily due to research company ComScore's report that marketers could use the social networking site to attract users to buy products. In its blog post, ComScore reported that companies that market to Facebook users who have signalled that they "like" a business or a particular brand could have increase the likelihood of the latter buying the product or service. Given Facebook's 900 million user base, that would be a big advantage for any company seeking to expand its customer appeal. This vote of confidence, coming after the recent deluge of bad news for Facebook, helped to provide a much-welcomed boost to the latter's stock price.
Meanwhile, the company's legal woes continue, with at least six lawsuits filed against its top officials, including CEO Mark Zuckerberg, as well as six investment banks involved in the IPO. The lawsuits alleged that Facebook had filed misleading disclosure statements, especially when its prospectus was amended (to include information about possible losses due to the increased use of mobile devices which PC-based Facebook would have problems monetizing the user traffic) on 9 May, so close to the IPO that brokerage firms downgraded the company's projected revenue performance and caused many institutional investors to stay away. Moreover, information about lowered earnings forecasts was only shared with selected clients.
Given the above, analysts are now revising their assessments of the company. Last week, Sanford C. Bernstein & Co. initiated coverage with an "underperform" rating and a $25 target price. Analyst Carlos Kirjner said, "it's difficult to argue for owning the stock today," adding that a near-term slowdown in sales growth would fuel concerns about the company's full-year sales. While S&P Capital IQ analyst Scott Kessler upgraded his rating on Facebook from "sell" to "hold", he maintained his $27 price target, saying that "we continue to have questions about (its) monetization, spending on internal investment, acquisitions of third-party companies and intellectual property, and corporate governance."