Looks like the Facebook pessimism has returned.
Shares of Facebook, which have been on a tear since CEO Mark Zuckerberg sought to calm Wall Street during an in an interview at TechCrunch Disrupt less than two weeks ago, are getting slammed today. The stock fell more than 10 percent at one point and triggered the SEC's short-sale restriction, which is designed to keep short-sellers from battering the stock even further. Shares closed down more than 9 percent at $20.75.
Why the sudden change of heart? The broader market is taking a hit, which of course doesn't help. But the kick in the gut came from Barron's, which over the weekend published a cover story concluding that Facebook's shares -- which in the last week have been trading in the low 20s -- should trade at perhaps $15. Ouch!
The piece, called "Still Too Pricey," had nothing new to offer in terms of what the Street calls fundamental analysis. The writer's main point: the shift to mobile caught the company by surprise.
That in itself is no surprise. Facebook has been talking about its mobile problem since before the IPO, and this was the key theme of Zuckerberg's talk on September 11 in San Francisco: he talked up the opportunity -- mobile ads are more effective, people spend more time on mobile devices -- and stressed that Facebook is now a "mobile company." His enthusiasm for mobile, coupled with straight talk about Facebook getting into the search business, gave Wall Street all it needed to halt the steady decline of the stock. The stock, which had been trading below $18, rose above $23.
Barron's did offer some basic analysis, based on where the shares trade in terms of profit and sales projections, which is how it came up with the $15-a-share figure:
Facebook trades at 47 times projected 2012 profit of 48 cents a share and 36 times estimated 2013 earnings of 63 cents. Compare that with Google and Apple, two proven technology growth stories, which both trade for about 16 times estimated 2012 earnings. Facebook is valued at $61 billion, or $53 billion excluding its estimated $8 billion in cash. That's more than 10 times estimated 2012 revenue of $5 billion. Google trades for half that valuation.
Now the glow from Zuckerberg's talk is fading, and people are again focusing on the many, and real challenges. The bigger issue for the stock, at least in the short term, is not so much about Facebook's progress in making money from mobile; it's about more shares coming to market. Over the next couple of months, restriction on insiders holding pre-IPO shares will expire, with the potential to flood the market with more than 1.5 billion shares. And if you're trading -- or thinking about investing in Facebook -- that's a serious concern.
And mark your calendar. Facebook will report its third-quarter earnings on October 23.
UPDATED: 1:45 PT to include closing stock price.