Analysts who broke away from the herd and told investors to avoid Facebook, the biggest initial public offering ever by a technology company, are looking like heroes after the stock plunged.
The social networking site lost 19 percent through yesterday to $34.03 after opening at $42 on May 18. That’s consistent with warnings from Richard Greenfield of BTIG LLC and Brian Weiser of Pivotal Research Group LLC, who says the stock will slip as low as $30. It left five firms with bullish calls predicting an average rally of 36 percent and one, Tom Forte of Telsey Advisory Group, saying shares may rise 47 percent to $50.
Sentiment toward the offering worsened yesterday after Facebook fell below the $38 price set by underwriters, burning investors who speculated the Menlo Park, California-based company would mimic IPOs such as Linkedin, which doubled on its first day. While bulls forecast benefits as companies shift advertising to the Internet, Wieser said Facebook’s price is too high and the path to growth unclear.
“There’s always a risk of buying into excessive hype, using rules of thumb for valuation that are divorced from fundamentals,” Wieser, a New York-based analyst at Pivotal, said in a telephone interview yesterday. “There are many things that really speak to the uncertainty investors should be incorporating when they’re thinking about Facebook.”
The range of price estimates compiled by Bloomberg as of yesterday is wider than normal. At $20, the difference between the lowest and highest is 59 percent of Facebook’s stock price, compared with an average of 36 percent for the companies in the Standard & Poor’s 500 Index. The biggest gap is in Tempe, Arizona-based First Solar Inc, an energy technology provider, at 376 percent of its price, data compiled by Bloomberg show.
The wider gap in analysts’ estimates “reflects uncertainty about a new entity but also that their business model is one that’s in continual development,” Peter, who helps manage about $2.9 billion at Oakbrook Investments in Lisle, Illinois, said in a telephone interview. “They own and have access to a lot of information, but they’re still struggling with finding an effective way of monetizing that information.”
Underwriters led by Morgan Stanley set an IPO price that valued the company at 107 times reported earnings in the last 12 months, more than every S & P 500 stock except Seattle-based Amazon and Equity Residential, a real estate investment trust in Chicago. The valuation made Facebook, co-founded in 2004 by Harvard University student Mark Zuckerberg, the largest technology IPO of all time.