Wedbush starts Facebook with outperform rating

Sat May 5, 2012 5:54am IST

A man takes pictures of signs welcoming the IPO of Facebook outside the office of J.P. Morgan in New York City, May 4, 2012. REUTERS/Lee Celano

A man takes pictures of signs welcoming the IPO of Facebook outside the office of J.P. Morgan in New York City, May 4, 2012.

Credit: Reuters/Lee Celano

Stocks

   

REUTERS - As Facebook Inc prepares to market its $10.6 billion initial public offering to U.S. fund managers next week, brokerage Wedbush Securities set a $44-per-share price target that implies a potential capital gain of about 40 percent for IPO investors.

Facebook on Thursday set an indicative IPO price range of $28 to $35 a share, which would value the world's largest online social network at $77 billion to $96 billion. Depending on how the roadshow for investors go, Facebook could begin trading on Nasdaq as soon as May 18.

Demand for Facebook shares will likely outstrip supply, Wedbush analyst Michael Pachter wrote in a research note, rating the stock "outperform".

"We believe Facebook will capture an increasing percentage of spending on offline advertising, while growing its share of online advertising as well as usage continues to increase and advertisers become more comfortable with the cost effectiveness of online advertising," Pachter said.

Not everyone on Wall Street is as bullish.

Steven Weinstein, an analyst with ITG Investment Research, said that Facebook's existing lines of business do not have the horsepower to justify investing in the company at a nearly $100 billion valuation.

"Just to get a reasonable return, a stock like this has to double in six-ish years," said Weinstein. "Right now they're not on trajectory to get there," he said, citing the deceleration in Facebook's advertising business and the limited contribution from its payments business.

But he said Facebook has a lot of opportunities to find new sources of revenue growth, including mobile advertising and potentially creating an online advertising network. Weinstein published a report analyzing Facebook's financials in April, though his firm does not provide a price target or rating on the stock.

In a note dated April 24, Pivotal Research Group had reduced the enterprise valuation of Facebook to $75 billion from $82 billion, saying Facebook's first-quarter results were disappointing.

Wedbush is the first financial firm to weigh in with an official price target and rating on Facebook's stock, as investors prepare for what is expected to be the largest IPO in Silicon Valley history.

Facebook's high valuation will put it on par with large-cap technology powerhouses such as Cisco Systems Inc (CSCO.O) and Amazon.com Inc (AMZN.O), making it certain to attract coverage from dozens of Wall Street analysts.

But analysts whose firms are involved in the IPO - Facebook's prospectus lists 33 underwriters - are unlikely to initiate coverage of Facebook until several weeks after the offering because of securities regulations

(Reporting by Alexei Oreskovic in San Francisco and Supantha Mukherjee in Bangalore Editing by Richard Chang, Gary Hill)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

Reuters Showcase

'Windows 10'

'Windows 10'

Microsoft names next operating system 'Windows 10'  Full Article 

Split from eBay

Split from eBay

Analysis - PayPal spawn have advanced where PayPal stood still   Full Article 

iPhone 6 in China

iPhone 6 in China

With iPhone 6 approved in China, Apple suppliers ready for demand.  Full Article 

Netflix Deal

Netflix Deal

Netflix 'Crouching Tiger' deal incurs wrath of theater chains.  Full Article 

Oracle Convention

Oracle Convention

Larry Ellison still the top draw at Oracle's mega-convention  Full Article 

Tax Rules

Tax Rules

EU says Ireland swapped Apple tax deal for jobs.  Full Article 

Music Services

Music Services

Google searches for right note in online music business.  Full Article 

E-Commerce Dispute

E-Commerce Dispute

Amazon, Disney appear close to settling dispute over movies - WSJ.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage