Facebook’s 40% plunge from its initial-public-offering price of $38 in May has millions of investors asking a single question: Is the stock a buy?
The short answer is “No”, says Barron’s. The stock trades at high multiples of both sales and earnings, even as uncertainty about the outlook for its business grows, the newspaper noted over the weekend. The rapid shift in Facebook’s user base to mobile platforms (more than half of users now access the site on smartphones and tablets) appears to have caught the company by surprise and CEO Mark Zuckerberg must find a way to monetize its mobile traffic because usage on traditional PCs, where the company makes virtually all of its money, is declining in its large and established markets.
Facebook currently trades at 47 times projected 2012 profit of $0.48 a share and 36 times estimated 2013 earnings of $0.63. Compare that with Google (GOOG) and Apple (AAPL), two proven technology growth stories, which both trade for about 16 times estimated 2012 earnings. Facebook is valued at $61 billion; that’s more than 10 times estimated 2012 revenue of $5 billion. Google trades for half that valuation.
What are Facebook shares worth? Perhaps only $15, Barron’s concludes. That would be roughly 24 times projected 2013 profit and six times estimated 2013 revenue of $6 billion.
Facebook (FB : NASDAQ : US$20.82), Net Change: -2.04, % Change: -8.92%, Volume: 76,160,514