Facebook Inc (FB) Proved Analysts Wrong


When it comes to choosing the right stock to invest in, investors often look out for analysts’ recommendations to get a better perspective about the company. However, sometimes analysts can be wrong and a CNBC report, which dates back to November, 2012, actually proves that. In Novermber, 2012, Richard Greenfield, an analyst at BTIF, set a ‘Sell’ rating for Facebook Inc (NASDAQ:FB) with a price target of $16, exactly on the day, when the company’s shares were surging amid unlocking of free-trading shares.

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The reason for Greenfield’s judgement was related to the mobile segment of the company. “The issue why you want to be short this stock and why we have been telling clients to sell Facebook Inc (NASDAQ:FB) at these levels truly when it started accelerating a month ago, is really because of the challenge of mobile,” he said. At the same time, Greenfield said that Facebook Inc (NASDAQ:FB) had put a great effort in increasing advertising since its IPO, but assumed more struggle ahead of the road. However, two years later, Facebook clearly makes its case with 62% of total ads revenue coming from mobile devices, as reported by the Wall Street Journal quoting  eMarketer.

Greenfield added that the advertising is best in the hands of the operating system, players like Google Inc (NASDAQ:GOOG)  or Apple Inc (NASDAQ:AAPL), who have a better understanding of what users are purchasing, while Facebook could only target consumers on the basis of what they or their friends like and thus, lack the best data to provide geo-local advertising.

“The challenge for Facebook Inc (NASDAQ:FB) is that people are assuming that this company could continue to grow 25% or 35% top-line growth over the next several years. If you see the advertising products coming out and the number of players that are competing, remember, Facebook doesn’t control your device. They don’t have an operating system,” said Greenfield.

Greenfield was again wrong, because currently Facebook and Google Inc. are battling in the mobile ads market. According to the same Wall Street Journal report, Facebook might amass  as much as an 18% share in the $17.7 billion mobile ad market.

At the same time, Greenfield also appeared uncomfortable about change in Facebook Inc (NASDAQ:FB)’s objective from being on a social mission to pushing hard for monetizing the advertising segment. A valuation of beyond $21 was unimaginable for Greenfield as he found no justification of how Facebook’s aggressive endeavors could translate into growth. After two years, Facebook Inc (NASDAQ:FB) has pretty much answered the question with its $73 stock price, installing faith that it is definitely a growth company.

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