Shares of Facebook, which were given a boost last week when the social networking company reported first quarter results that largely met analysts’ expectations, may be over valued, financial newspaper Barron’s said.
Facebook closed at US$28.31 on Friday, 60 per cent higher than last summer’s low-point, but well below its initial public offering price of US$38 last May. However, the company is probably worth no more than US$25 a share, Barron’s said, reiterating a stance it took in February.
Facebook trades for 75 times its this year earnings estimate using generally accepted accounting principles (GAAP), while Google trades for less than 20 times its this year earnings, the article said.
While a sharp rise in mobile ad revenue helped Facebook increase its overall revenues by 38 per cent in the quarter versus a year earlier, that mobile ad revenue came at the expense of desktop ad revenue, which was flat, Barron’s said.
The paper warned that desktop ad revenue may start to drop, meaning investors are assigning a “hefty” market value to Facebook of US$71 billion (HK$550.84 billion), based largely on just US$1.5 billion (HK$11.64 billion) in mobile ad revenues. Expenses were up 60 per cent in the quarter, it added.
Google has been investing in a range of products, from YouTube, self-driving cars, interactive eye wear, maps and Android software. “Facebook seems more focused on barraging subscribers with ads to meet Street profit expectations,” Barron’s said.