Missing amid the numerous stock market milestones and seemingly unstoppable rallies since the start of the year is Facebook stock.
Tuesday marked the 20th consecutive Tuesday the Dow Jones Industrial Average closed with a gain. And, the Standard & Poor’s 500 Index, up 16.4% year-to-date, finished just nine points shy of its all-time high of 1,669.16 hit mid-month.
Meanwhile the Nasdaq, Facebook’s (Nasdaq: FB) home exchange, has gained 4% in May and 16% this year.
In contrast, Facebook stock is down some 10% year-to-date.
This month alone, Facebook shares have tumbled 12%. Amid Tuesday’s broad-based robust rally, Facebook stock tumbled to its lowest level of 2013 – until shares slumped another 2% Wednesday, marking yet another low for the year.
Here’s why the slump continues.
Facebook Stock Still Too Pricey
When Facebook went public a little more than a year ago, the social network behemoth was valued at $104 billion – the highest valuation ever for a tech IPO.
Even before the debut, a slew of financial experts deemed Facebook shares as overvalued. An ABC News survey of 124 portfolio managers and analysts before the IPO found only 8% believed the stock’s value would increase over the next six months.
Shares currently change hands at an elevated 40 times price-to-earnings ratio based on 2013 estimates. History shows pricey stocks are notorious for puny returns.
While it’s true that companies in high growth areas tend to have high P/E’s, it’s helpful to look at others in the sector for a clearer picture. In that respect, Facebook is more expensive than Google Inc (Nasdaq: GOOG) with a P/E of 25.91, Yahoo! Inc (Nasdaq: YHOO) with a P/E of 7.5, and AOL Inc (NYSE: AOL) with a P/E of 3.7.
Facebook Fails to Retain Investors
While Facebook’s contribution to the Internet and social networking is indeed fascinating, shares fail to have a similar impact on investors.
A Facebook stock low of $17.55 was hit four months after the IPO, less than half FB’s $38 per share debut price.
Early big money investors bailed as soon as lock-ups permitted. Disgruntled investors fled, opting for losses instead of waiting for a comeback, taking cues from analysts like Citigroup’s Neil Doshi…
Slashing his rating to a “Neutral” from a “Buy,” Doshi cited Facebook’s aggressive spending plans and “little expected contribution from new initiatives” this year, from gifts and search.
In addition, while Facebook is making headways in the mobile market, it’s coming at the expensive of FB’s real cash cow-desktop. In a note to clients, Doshi wrote, “mobile ads appear to be cannibalizing desktop [advertising], which further concerns us.”
Facebook’s Losing It’s “IT” Factor
As Facebook matures, it’s losing its younger person appeal. Teens are an accurate barometer of what’s in, who’s it and what’s next, and current rumblings are it’s not Facebook.
Defections to other sites such as Tumblr, Snapchat, Instagram and Whatsapp have been notable as Facebook has been labeled “uncool.”
Fresh data suggests Tumblr may have already surpassed Facebook as the most popular social network among 13-25 year olds. That explains the eyebrow raising $1 billion Yahoo just spent to purchase the social blogging site.
Facebook acknowledged the challenge of keeping teens engaged and the implications from their exits. In its 10-k filing with the SEC, Facebook wrote, “In the event that our users increasingly engage with other products and services, we may experience a decline in user engagement and our business could be harmed.”
So with Facebook stock hitting a 2013 low, nearing its all-time lowest point, look for more struggles ahead for Zuckerberg and company…
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