Barron's slams Facebook, stock falls

Monday - 9/24/2012, 10:33am EDT

NEW YORK (AP) - Facebook Inc.'s stock took a hit Monday after an article in the financial magazine Barron's said it is "still too pricey" despite a sharp decline since its initial public offering.

THE SPARK: Though Facebook's stock has plunged since its May IPO, Andrew Bary at Barron's said the stock trades at "high multiples of both sales and earnings, even as uncertainty about the outlook for its business grows."

At issue is the shift of Facebook's massive user base to mobile devices, where Facebook is still figuring out advertising. Bary said success in the mobile space is "no sure thing" for the company. Mobile ads must fit into much smaller screens, which doesn't give Facebook "much room to configure ads without alienating users," Bary said.

Facebook also has what Bary called "significant" stock-based compensation expenses. Last year, the company issued $1.4 billion worth of restricted stock and $1 billion so far this year, he noted. Yet technology companies such as Facebook "routinely encourage analysts to ignore stock-based compensation expense _ and most comply. This dubious approach to calculating profits is based on the idea that only cash expenses matter," Bary wrote. "That's a fiction, pure and simple."

THE ANALYSIS: Bary said he thinks Facebook's stock is worth $15, well below its current price even with Monday's drop.

"That would be roughly 24 times projected 2013 profit and six times estimated 2013 revenue of $6 billion, still no bargain price," he wrote.

A representative for Facebook could not immediately be reached for comment Monday morning.

THE BACKGROUND: Last week, research firm eMarketer said it expects Google Inc. to surpass Facebook in U.S. display advertising revenue this year. In February, eMarketer predicted Facebook would stay ahead of Google. The social networking company had surpassed Google in 2011. But Facebook's ad revenue has fallen short of the expectations eMarketer set in February.

SHARE ACTION: Facebook's stock fell $1.60, or 7 percent, to $21.26 in morning trading. The company went public on May 18 at a share price of $38, which it has not hit since.


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