One month after Facebook’s tumultuous public stock offering, Wall Street analysts are unveiling their outlooks for the No. 1 social network — and most are sounding a note of muted optimism.
More than a dozen analyst reports on Facebook hit the street Wednesday, marking 40 days since the company’s first day of trading on May 18, when Facebook became the first U.S. company to debut with a market value of more than $100 billion. Under securities law, the 33 banks that took part in Facebook’s IPO had to wait that long before publishing their views.
In reports from banks such as Morgan Stanley and Goldman Sachs, analysts said they are generally upbeat about the long-term outlook for the company, given its 901 million users. Many of the analysts also said they think Facebook can grab a significant slice of the Internet advertising market.
However, there was also a note of caution about Facebook’s business model and its ability to make money from the growing number of users who log on to the service using a mobile device.
Oppenheimer analyst Jason Helfstein set a price target of $41 for Facebook’s stock price over the next 12 months, suggesting upside potential of 24 percent compared with its close of $33.10 on Tuesday.
Helfstein said a price of $41 was a reasonable target and not overly aggressive, adding that he thinks some of the estimates for Facebook’s stock price were too high. Still, Facebook’s stock will be attractive to long-term investors, he told CNBC.
“Are we saying buy the stock, make money tomorrow? No,” he said, adding that investors who hold on to it for a long time will likely make money.
Shares of Facebook fell to a low of $25.87 on June 6, down 32 percent from the company’s initial offering price of $38. But they have since recovered some of their lost ground and are up 27 percent from that early June low.
Facebook’s IPO was one of the most highly anticipated stock offerings of recent years, but it had an inauspicious start.
A first-day trading glitch delayed its first trades, leading to complaints of slow order confirmations and too many shares offered at too high a price. Subsequent lawsuits have alleged that the Nasdaq botched the offering and that deal underwriters Morgan Stanley and others failed to share lowered earnings forecasts with retail investors before the IPO.
Morgan Stanley, J.P. Morgan Securities, Goldman Sachs, RBC Capital Markets, Piper Jaffray, Oppenheimer and William Blair began coverage of Facebook with their top ratings, while analysts at BofA Merrill, Barclays Capital, Raymond James, Stifel Nicolaus, Lazard Capital Markets and Citi Investment Research & Analysis gave the company’s stock a less-sanguine “hold,” “market-perform,” or equivalent rating.
Goldman Sachs set a share price target of $42 for Facebook, while RBC said it expected a run to $40. BofA Merrill Lynch and Morgan Stanley pegged the shares at $38, and Citi and Barclays opted for a price $35.
However, BMO Capital Markets bucked the relatively upbeat trends and began coverage of Facebook with an “underperform,” -- its lowest -- and set a share-price target of $25.
Perhaps the greatest challenge to Facebook’s future growth is its ability to find a growing source of revenue, particularly from the growing mobile sector.
The social network appears to have already lost one potential source: Last week, Facebook agreed to a $20 million settlement in a California lawsuit claiming it publicized that some of its users had “liked” certain advertisers but didn't pay the users, or give them a way to opt out.
The so-called “Sponsored Story” feature on Facebook is essentially an advertisement that appears on the site and includes a member’s Facebook page and generally consists of another friend’s name, profile picture and a statement that the person “likes” that advertiser. Dumping the “Sponsored Stories” feature could cost Facebook $103.2 million in lost revenue.
On the mobile side, about 20 percent of Facebook’s current user base is in the U.S. and Canada, and half of those users are accessing the site using mobile devices, through which Facebook derives much less advertising revenue than through a desktop PC.
What’s more, markets where Facebook is growing most rapidly -- in Europe and Asia -- bring the company less revenue. Facebook brings in $3 per user in the U.S. and in Canada, but only $1.50 in Europe and just 50 cents in Asia.
In established markets, such as the U.S. and Canada, revenue growth from ads and other services is slowing. The company, which last year was more than doubling the amount of money collected every quarter compared with a year earlier, reported growth of 45 percent in the first three months of 2012, and revenue declined from the preceding quarter.
And in mid-May, General Motors very publicly yanked $10 million in Facebook advertising, saying paid advertising on the site isn't effective.
Facebook is due to issue its first earnings report as a public company in mid to late July.
However, Piper Jaffray analyst Gene Munster dismissed the revenue considerations as short-term concerns for Facebook. He said there outlook for Facebook, particularly in terms of revenue from e-commerce transactions, “looks bright.”
“All this negative perspective in the near term has been well known,” he told CNBC. “The key takeaway for us is we think next year there’s going to be accelerating revenue growth” when Facebook begins to monetize commercial transactions over its platform, he said.
“When they open up their platform it will change how people buy things,” he added.
BofA Merrill Lynch said it thinks Facebook’s user monetization rate is fairly low, despite expecting the company to bring in $4.8 billion in revenue in 2012 as new advertising formats drive up revenue growth in the second half of 2012.
Facebook has introduced a string of enhancements to its advertising service over the past few weeks, including a program that allows marketers to specifically target ads to users of Facebook on mobile devices. Another improvement shows Facebook users ads based on websites that they have visited.
“The company is in the midst of a mobile usage transition and we are cautious on Facebook’s revenue trends until new mobile ad revenue models start driving the top line,” BofA Merrill Lynch’s analysts wrote.
Reuters contributed to this report.
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