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Since Facebook Inc.'s (Nasdaq: FB) debut as a public company at $38 a share on May 18, and the stock's peak at $45 on the same day, shares have tumbled nearly 50%.
Facebook stock hit a fresh low yesterday (Tuesday), with shares reaching $17.55 before closing at $17.73.
The slump came after a trio of brokerage firms slashed their price targets for Facebook shares. The firms cited the wave of expiring lockup periods that will flood the market with close to 1.7 billion shares over the next several months.
The first lockup period expired Aug. 16, freeing a first batch of some 268 million shares. In mid-October, 192 million more shares will be let loose, and on Nov. 14 a whopping 1.2 billion shares will be free to sell.
The total is more than four times the number of shares floating on exchanges before the lockup periods began expiring.
"It's like a train coming around the corner toward shareholders, so they better get out of the way," Francis Gaskin, president of research firm IPOdesktop told the Los Angeles Times right before the end of the first lockup.
Editors Note: Wall Street is finally closing in on what we told you FB stock is really worth..
New and Reduced Facebook Stock Targets
Due to the extra shares as well as concerns over Facebook's declining ad revenue, analysts have been slashing FB price targets. Here are the latest lowered estimates:
- Bank of America/Merrill Lynch (NYSE: BAC) hacked its target price on FB stock to $23 from $35. BofA cautioned that Facebook will face further selling pressure as additional lockup periods expire. The firm also noted Facebook's revenue will face increased risks as more users shift to mobile usage, an area where Facebook collects less revenue than it does from desktop users. A decline in social gaming and increased spending are also concerns.
"Facebook has multiple lock-up expirations over the next year, and recent selling activity on the August lock-up suggests to us the risk of future selling pressure," wrote BofA analyst Justin Post. Looking ahead to November's lockup expiration, Post added, "We wouldn't expect the stock to see buying momentum until December."
BofA maintains a "Neutral" rating (what some traders love to call a seven-letter word for "sell") on Facebook.
- Stifel Nicolaus (NYSE: SF) was less generous and told investors that the firm would start taking notice of FB shares at the $16 level.
"Although valuation appears tempting, the uncertainty of the earnings trajectory and increasing public float leaves us cautious," Jordan Rohan of Stifel penned in a note to clients. While Rohan acknowledges Facebook's platform "has huge potential" it still must overcome "significant" challenges with monetization.
Stifel doesn't have a price target on the stock and currently rates shares a "Hold."
- The biggest bear of the bunch is Daniel Salmon of BMO Capital Markets. On Friday he reiterated his "Underperform" rating on Facebook shares and slashed his price target from $25 to $15. Salmon believes Wall Street revenue estimates may be too rich for the third quarter.
- "Checks on paid media spending remain mixed: many conversations referenced a "pause' in order to reevaluate earned/owned/paid mix and ROI (return on investment) measures," Salmon wrote. He also noted that investor sentiment "is now much worse" than sentiment among advertisers for Facebook, but that the company's business fundamentals will once again be the main focus "after the technical challenges presented by lock-up expirations over the next six months have been absorbed by the stock (possibly offset by some index buying at some point)."
Facebook stock gained nearly 5% by 11 a.m. to hit $18.55.
Related Articles and News:
- Money Morning:
Congrats on One Billion Facebook Users…Who Buy Nothing
- Money Morning:
Another 1.7 Billion Reasons to Avoid Facebook Stock
- Market Watch:
Facebook hits new low as target slashed
Facebook Slides to New Low