Facebook Plumbs New Lows: More Target Cuts; Change in ‘Philosophy’?
Shares of Facebook ( FB ) are down down 46 cents, or 2.5%, at $17.59, marking new lows this morning, as another wave of cautious reports emanates from the sell side. As with the wave of reports on Friday , today's action centers on the threat of the expiration of lockups on insider share sales , which began last month. JP Morgan's Doug Anmuth reiterated an Overweight rating but cut his price target to $30 from $45, citing the lockups, but urging investors to stay the course: Street focus remains on heavy lock-up expirations in October and November, but for those willing to look out a bit further we believe the risk/reward is attractive with Facebook trading at 7.5x 2014E EBITDA. Anmuth thinks the company's ad revenue growth will pick up this second half of the year, helped by the company's " sponsored stories " format, though he cut his estimates for payment revenue , citing changes in the nature of online, social gaming, where Zynga ( ZNGA ) has struggled. The dynamics around social gaming have changed, leading to lower monetization for Facebook. Existing and new Web games now operate in a more competitive space, and users are rapidly shifting to mobile devices where Apple and Google control app distribution and payments. Facebook has also yet to develop other Payments verticals beyond games. We now project a 4% decline in Payments revenue in 2013—flattish thereafter. Anmuth raised his ad revenue estimate for this year to $4.14 billion from $4.12 billion, while cutting his payments estimate to $832 million from $869 million, for a total of $4.97 billion, down from $4.985 billion. He models 51 cents EPS, a penny less than before. That is still better than the Street consensus of $4.92 billion and 49 cents. Morgan Stanley's Scott Devitt today also reiterated an Overweight rating, but cut his price target to $32 from $38, citing both risks from rising mobile usage as well as "declines in user engagement."
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