Why the Facebook Stock Price is Up

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Over the past several days, the Facebook stock price has done a stark about-face.

In fact, Facebook (Nasdaq: FB) shareholders just might get the pop in price they have been hoping for ever since the social media giant debuted May 18.

Worries that Facebook's shares were overvalued and concerns that the company would not be able to grow revenue fast enough had pummeled shares lower by as much as 32% from the May 18 IPO price of $38.

After a disastrous IPO and a dismal showing in the weeks that followed, shares of Facebook are finally showing real signs of life. The tide may be turning.

Reasons for the Facebook Stock Reversal

Some say the turnaround has more to do with the waning negative media coverage.

Sean Kelly, managing director at Knight Capital Group Inc., told The Wall Street Journal, "It just seems like the selling pressure has gone away."

Kelly said that speculators have exited, and buy-and-hold, or "long-only investors" have been taking a shine to shares.

"We'd had long-only players who had been selling the name since it got down into the low $30s, and selling it aggressively. We just haven't had those calls in the last several days," Kelly added.

Others say the upward movements in Facebook stock are due to the company's enthusiastic efforts to expand its business model. Just this week Facebook acquired Face.com, a facial-recognition start-up.

While Facebook has revved up its advertising efforts, it is also trying to attain revenue outside of that area.

Facebook announced Tuesday that it will begin accepting local currency for purchases on its site instead of only allowing purchases through its in-house system, known as Facebook Credits. The company, which takes a 30% cut of payments to third-party developers, is planning to let app designers charge users for their services on a subscription basis.

Fuad Ahmed of discount brokerage Just2Trade told The Journal, "We're starting to see some sense of how the company is going to monetize. Our customers are starting to hold the stock overnight. They're starting to feel comfortable."

Another reason for the upward trend may simply be a knee-jerk reaction. The early and abrupt fall was viewed by some as potentially positioning the stock for a recovery.

"Part of it could be a natural bounce," Joe Kinahan, chief derivatives strategist at TD Ameritrade, told The Journal. "You don't often see a stock come from its high of $45 to a low of $25 in a couple of weeks."

In a note to clients Wednesday, Evercore Partners analysts Ken Sena said he still sees long-term value in Facebook. Evercore rates shares an "equal weight," noting that better buying opportunities might emerge in the next six months as lockup periods expire. The lockups have restricted insiders from dumping shares.

Susquehanna analysts on Tuesday restated a "positive" rating on Facebook, with a $48 price target. And more upgrades may follow next week as some of the 33 underwriters begin to release their first FB reports.

Another boost may come when Facebook's shares are added to Russell Investment Indexes, Wedge Partners Corp. analyst Martin Pyykkonen told Bloomberg News. Russell will post its membership list on June 25.

Looks like traders and investors are in the early stages of starting to "like" Facebook stock a bit more.

Money Morning Capital Waves Strategist Shah Gilani recently discussed his views on Facebook in a radio interview with "On the Money!" program host Steve Pomeranz. Click here to hear the whole interview about Facebook stock, Europe's debt and JPMorgan.

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