There was so much hype from Wall Street and investors when Facebook, Inc. (NASDAQ/FB) made its debut in the public sector on May 18, 2012, and saw its stock price reach a high of $45.00. Well, that has been the high point so far for this company that, despite having a billion subscribers, has yet to successfully monetize its assets and make money, based on my stock analysis.
My stock analysis is that social networking will continue to have excellent upside, but the bottom line is that a company also needs to make money.
Whether you blog, tweet, or meet face-to-face in the virtual world via Skype, “FaceTime,” Facebook, or any other social media platform, social networking has vast opportunities, especially in China (read “Why China’s Internet Sector Is Lucrative”), according to my stock analysis.
Chart courtesy of www.StockCharts.com
Now, six months after the initial public offering of Facebook, the stock, to the disappointment of the initial and subsequent investors, is lost. The value of the company has declined by over 50% and an SOS has been sent out by CEO Mark Zuckerberg; Facebook has launched new services, including mobile advertising, in the hopes of enticing its users to spend money. Again, my stock analysis is that this will be easier said than done due to the intense competition.
Of course, Facebook also just saw the release of another 800 million shares into the market, as another lock-up period expires. I would not be a buyer at this time, based on my stock analysis.
The reality is that social media stocks like Facebook need to deliver the growth and results that have driven other social networking stocks, such as LinkedIn Corporation (NYSE/LNKD), upward on the charts. The advantage LinkedIn has over Facebook is the high quality of its subscriber list that consists of mostly business people armed with more capital to spend.
Companies like Facebook or Angies List, Inc. (NASDAQ/ANGI), which debuted a year ago in November 2011 at $18.00 and is currently down more than 40%, have not yet figured out how to capitalize on their user lists, and until that happens, I really have little confidence.
In the case of Facebook, Zuckerberg needs to get out of his college dorm-like mindset and focus on building a company—that means making lots of money.
My stock analysis is that Facebook needs to drive revenues from its users the way Google Inc. (NASDAQ/GOOG) has done with its advertising and other broad Internet services and assets. Google is well into its development as a top Internet company. The company just launched a high-speed Internet service in some parts of the U.S. that could pay dividends.
Facebook will likely evolve over time, given its access to capital, based on my stock analysis; but for the time being, I question its market value following the decline.
Based on my stock analysis, Facebook will likely head lower on the chart unless the market gets irrational and decides to support the stock on price dips.
Trading at 31X its forward earnings per share (EPS) and 0.3X its trailing sales, my stock analysis is that Facebook is overvalued, even at its lower price. By comparison, Google trades at a much superior 14.2X its forward EPS and 4.6X its trailing sales. Applying Google’s valuation to Facebook, I come up with a much lower stock price for Facebook. Based on this simple comparison, Facebook could head much lower. Google is monetizing its user base; Facebook needs to.