Facebook Inc. (FB) fell in early trading on Oct. 8 after analytical firm Raymond James downgraded its shares to “outperform.”
Even though the firm simultaneously raised their price target on the social media stock by $18, the downgrade puts a damper on the wild run Facebook has been on since reporting an enormous increase in mobile ad revenue in their second quarter earnings report.
While issuing the downgrade, Raymond James analyst Aaron Kessler maintained that they still like Facebook, citing the “strong traction with mobile advertising, as well as newer ad formats” and raising their price target over 30 percent. The firm is especially impressed by nascent social media company Instagram, which Facebook bought for $1 billion in April 2012 and is about to be fully monetized. Raymond James expects Instagram to rake in $456 million in revenue in 2015.
Since the earnings report in July, Facebook had almost doubled in price, gaining 93.34 percent in less than three months. Harnessing mobile revenue had long been seen as the key to Facebook realizing profit from their huge user base.
When the company did exactly that, Wall Street responded enthusiastically. Three firms upgraded the stock the day following the report, and Facebook started its impressive run that continued nearly unabated through August and September.
However, some analysts began grumbling that while Facebook had indeed monetized their user base effectively, the market had overreacted, and the stock was due for a correction. On Oct 3 Pivotal Research downgraded the stock to “hold.” On Oct. 7 Atlantic Equities provided new coverage and rated Facebook’s shares as being “overweight.”
With Raymond James’ downgrade, the bull period might finally be coming to an end. The recent string of more pessimistic coverage highly suggests that Wall Street’s late summer fling with Facebook is finally cooling off.
Facebook’s stock fell sharply on the downgrade, losing 5.83 percent to hit $47.57 a share.
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer