Cramer: Analysts get real on Facebook
Jim Cramer | email@example.com
First, there's Morgan Stanley, which came out with an "overweight" rating, but the recommendation is so lukewarm that you might be tempted to sell it on the research. What jumps out at me immediately is the price target, $38.
That's where Morgan Stanley brought the stock public to begin with, suggesting that the analyst, Scott Devitt, thought the IPO was fully valued from the get-go. He has reservations, and they are actual reservations, not just the common, boilerplate risk factors, including the issues involving mobile ads and the possibility of near-term disappointment on this front.
Considering that Devitt gave Facebook the equivalent of a near-term earnings shave on the eve of the IPO, it sounds to me that the migration from desktop to mobile continues to plague earnings. When you hear concerns about "brand transitions" to mobile, it raises questions about whether General Motors wasn't alone in slashing money toward Facebook advertising.
Morgan Stanley also raises privacy concerns, as in how much data about you Facebook can get away with sharing with advertisers before alienating the customer or the government. Looks like Morgan Stanley isn't kidding about having a price target that's square where the deal came, and not a penny further.
JP Morgan has staked out the high end of the spectrum, coming out with a $45 price target. But even there, you can't get too excited, as that's a year-end 2013 target. Given that this company is supposed to be one of the fastest growing on earth, I don't know if I should hang out for a 40 percent gain in 18 months. That's not so exciting to me, given the risks here.
JP Morgan likes Facebook's so-called sponsored stories as a way to make money, and it predicts better pricing for mobile ads. Still, the firm is talking about mobile being a quarterly opportunity of just $300 million to $500 million for the company, and with an $86 billion market cap, I would have expected more.
Goldman Sachs is thinking that the stock can go to $42 in 12 months, a lower target than JP Morgan's but one that will be achieved in a quicker time frame. Goldman is talking about Facebook domination, but right up top they tell us not to worry about "Facebook fatigue." Given that I didn't even know there were worries about fatigue, I found that comment disconcerting.
Goldman also acknowledges that mobile is a headwind, something that's pretty negative when you consider the speed of mobile adoption that's currently going on. They do cite potential opportunity, though.
Far more typical is the "neutral" rating that Citigroup gives Facebook, with a meager $35 target. Why? First, a dual-class ownership, which Citigroup says raises issues about shareholder friendliness, as well as limited appeal to advertisers, unclear mobile monetization, and worries about a pending huge lock-up expiration.
The bottom line here is twofold. First, Wall Street doesn't seem all that eager to pander to Facebook, and that is a very good and honest thing. Second, the bar has been set rather low.
Anything surprisingly good from Facebook will produce immediate results. Right now I just see an expensive stock without any catalysts to move it dramatically higher. In other words, I see it just like the analysts: hard to love and, maybe sub rosa, even hard to like.
Disclosures: Cramer's charitable trust has no positions in the stocks mentioned.