Inyoung Hwang and Brian Womack
June 1, 2012
The slide in Facebook Inc. stock that has cost investors $25 billion may not end until the shares drop another 20 percent, leaving the company’s valuation on par with competitors that also do business over the Internet.
Facebook, with a market capitalization of $79.1 billion, is trading at 29.5 times the company’s projected 2014 profit of $2.69 billion, data compiled by Bloomberg show. The stock would have to dive to $23.07 to match the average price-to-earnings ratio for the Nasdaq Internet Index based on estimated earnings in the next 12 months, according to the data.
Investors have pummeled shares of Facebook since its initial public offering, citing concern over growth prospects for the largest social-networking service. Shareholders filed lawsuits that said the company and its underwriters overpriced Facebook at $38 a share. The IPO gave Facebook a higher multiple than 99 percent of the Standard Poor’s 500 Index.
“It could fall quite significantly because it was priced at a significant premium,” Sameet Sinha, an analyst at B. Riley & Co., said in a telephone interview yesterday. “Such stocks — when they go out of favor — tend to fall before stabilizing.”