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Analysis: Top-rated analysts negative on Facebook earnings
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A Facebook application logo is pictured on a mobile phone in this photo illustration taken in Lavigny May 16, 2012.
Credit: Reuters/Valentin Flauraud
By Edward Krudy and Rodrigo Campos
NEW YORK |
Thu Jun 28, 2012 4:01pm EDT
NEW YORK (Reuters) - Wall Street's disappointment with Facebook looks poised to continue as research shows the social media giant's first earnings report could fall below forecasts by as much as 15 percent.
Thomson Reuters StarMine's SmartEstimates, a model that rewards accuracy and timeliness of analysts' predictions, suggests Facebook Inc will post quarterly earnings of 10.4 cents per share, below the mean Wall Street expectation of 12.2 cents a share.
In more than a dozen highly anticipated reports, Morgan Stanley and other major brokerages said Wednesday it remains unclear how Facebook plans to make money from a growing number of users logging on to the No. 1 social network via smartphones and tablets.
The reports, released by banks involved in the initial public offering after a 40-day quiet period expired, represent Wall Street's broadest assessment of Facebook, the first U.S. company to debut with a market value of more than $100 billion.
The most recent estimates for quarterly earnings range between 8 cents and 29 cents. Facebook is set to report earnings for the current quarter next month.
StarMine's models paint a less-than-flattering picture of the stock. The stock's intrinsic value - a measure of how much shares should be worth when considering expected growth rates over the next decade - ranks it worse than 98 percent of stocks in StarMine's North American universe of 4,900 companies.
The flood of research on Facebook from Wall Street firms published Wednesday, including the lead underwriters of the deal, did little to change the intrinsic value of the stock, which is still below $10, according to Thomson Reuters StarMine.
StarMine's intrinsic valuation suggests Facebook's stock should be trading at $9.57 compared to Wednesday's close of $32.23. The current price suggests better growth than what analysts anticipate; StarMine's models take into account analyst estimates for growth, usually over five years, and then model the typical growth trajectory of companies over a longer period of time.
The company's IPO was priced at $38 but sank rapidly after its debut to a low of $25.52. A comeback that saw the price gain 22 percent in the two weeks to last Friday.
"If you look at Facebook's starting valuation versus the amount of revenue and income they generate, and you compare it for example to Google and what it was generating at the time, a valuation under $10 makes a lot of sense assuming Facebook's prospects are as unknown as Google's were at the time," said Michael Quigley, portfolio manager at Wedgewood Partners in St. Louis.
Google Inc's initial public offering was priced at $85 a share in 2004; it now trades at $559 a share and carries a market value of about $182 billion.
All told, there are 16 firms with buy ratings on Facebook, 16 with hold ratings, and 2 with sell ratings. That's a more pessimistic mix than the average Internet stock, according to StarMine. More than 60 percent of ratings covering 110 Internet services companies tracked by StarMine are buy ratings, and about 35 percent are hold ratings.
Looking out to the next quarter, indications are for more negative surprises. StarMine's estimate is 11.3 cents per share for the subsequent quarter, some 6.6 percent below the mean estimate 12.1 cents. For the full year, earnings at StarMine are seen at 48.1 cents, 5.8 percent below the 51 cents per-share mean.
Several analysts working for the underwriters, including Morgan Stanley and Goldman Sachs, cut financial forecasts for Facebook days before the IPO, after the company cautioned about revenue growth due to a rapid shift of users to mobile devices, where Facebook is less effective at generating revenue.
(Reporting by Rodrigo Campos; additional reporting by Edward Krudy, Noel Randewich and Edwin Chan; Editing by Kenneth Barry)
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