Is Facebook Really Only Worth $15?

Andrew Klips |

Is Facebook Really Only Worth $15?When Facebook (FB) made its public debut on May 18 at $38 per share, the public entity got off to a bad start with trading execution errors and a litany of commentary about its corporate valuation. Those who contested that the company was grossly overvalued have silenced their opponents as shares have plunged nearly 50 percent to the $20 range and even went as low as $17.55 to kick-off September.

After a bottom bounce, shares taxied 9 percent lower on Monday as Andrew Bary at financial magazine Barron’s said the Menlo Park, California company is “still too pricey.” He believes shares of FB should carry a price tag at $15 per share at best, according to the article. Even at that level, Bary says it is “still no bargain price,” based upon projected profits and revenue.

“Stay away from the stock,” was part of Bary’s closing commentary. Bary noted that Facebook is still trading at “high multiples of sales and earnings”--especially when compared to other tech standouts like Apple (AAPL) and Google (GOOG)--and questions the company’s ability to overcome concerns about advertising to the growing number of people using mobile devices like tablets and smartphones to visit the popular website. Let’s face it…smaller screens leave less room for ads. Facebook must figure out a way to bridge that gap as it is a primary source of revenue for them.

The fact that Facebook has given away shares like they were free is also a major consideration in a fair valuation of the company. Using stock as compensation, Facebook has issued about $2.4 billion worth in the last two years. Over the next couple months, restrictions on sales will be lifted, giving employees the opportunity to sell shares much like director Peter Thiel did recently.

To be fair, not everyone is down on Facebook. Cantor Fitzgerald analyst Youssef Squali initiated coverage on FB with a “Buy” rating and a $26 price target last week.

In a separate matter, yesterday evening and into this morning there have been rumors flying around the web that Facebook has experienced a security failure allowing private messages to be displayed publicly. French online privacy watchdog CNIL has even summoned top officials from Facebook France to a meeting to discuss. The rumors appear to just be user’s overreacting to changes. There is no glitch. There was no breach. "Facebook engineers examined the situation and confirmed that the messages in question were old postings, which had previously been visible on the users' profiles," said a Facebook spokesman. It is merely a matter of changes to a new user interface with Facebook profiles, the company explained.

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

Companies

Symbol Name Price Change % Volume
FB Facebook Inc. 115.40 0.30 0.26 25,070,364
AAPL Apple Inc. 109.90 0.41 0.37 26,527,997
BOOT Boot Barn Holdings Inc. 15.18 -0.51 -3.25 366,798
GOOG Alphabet Inc. 750.50 2.58 0.34 1,452,484

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