Top-rated analysts negative on Facebook earnings

Thomson Reuters StarMine's SmartEstimates, a model that rewards accuracy and timeliness of analysts' predictions, suggests Facebook Inc will post quarterly earnings of 10.4 cents per share, below the mean Wall Street expectation of 12.2 cents a share.

In more than a dozen highly anticipated reports, Morgan Stanley and other major brokerages said Wednesday it remains unclear how Facebook plans to make money from a growing number of users logging on to the No. 1 social network via smartphones and tablets.

The reports, released by banks involved in the initial public offering after a 40-day quiet period expired, represent Wall Street's broadest assessment of Facebook, the first US company to debut with a market value of more than USD 100 billion.

The most recent estimates for quarterly earnings range between 8 cents and 29 cents. Facebook is set to report earnings for the current quarter next month.

StarMine's models paint a less-than-flattering picture of the stock. The stock's intrinsic value - a measure of how much shares should be worth when considering expected growth rates over the next decade - ranks it worse than 98% of stocks in StarMine's North American universe of 4,900 companies.

The flood of research on Facebook from Wall Street firms published Wednesday, including the lead underwriters of the deal, did little to change the intrinsic value of the stock, which is still below USD 10, according to Thomson Reuters StarMine.

StarMine's intrinsic valuation suggests Facebook's stock should be trading at USD 9.57 compared to Wednesday's close of USD 32.23. The current price suggests better growth than what analysts anticipate; StarMine's models take into account analyst estimates for growth, usually over five years, and then model the typical growth trajectory of companies over a longer period of time.

The company's IPO was priced at USD 38 but sank rapidly after its debut to a low of USD 25.52. A comeback that saw the price gain 22% in the two weeks to last Friday.

"If you look at Facebook's starting valuation versus the amount of revenue and income they generate, and you compare it for example to Google and what it was generating at the time, a valuation under USD 10 makes a lot of sense assuming Facebook's prospects are as unknown as Google's were at the time," said Michael Quigley, portfolio manager at Wedgewood Partners in St. Louis.

Google Inc's initial public offering was priced at USD 85 a share in 2004; it now trades at USD 559 a share and carries a market value of about USD 182 billion.

All told, there are 16 firms with buy ratings on Facebook, 16 with hold ratings, and 2 with sell ratings. That's a more pessimistic mix than the average Internet stock, according to StarMine. More than 60% of ratings covering 110 Internet services companies tracked by StarMine are buy ratings, and about 35% are hold ratings.

Looking out to the next quarter, indications are for more negative surprises. StarMine's estimate is 11.3 cents per share for the subsequent quarter, some 6.6% below the mean estimate 12.1 cents. For the full year, earnings at StarMine are seen at 48.1 cents, 5.8% below the 51 cents per-share mean.

Several analysts working for the underwriters, including Morgan Stanley and Goldman Sachs, cut financial forecasts for Facebook days before the IPO, after the company cautioned about revenue growth due to a rapid shift of users to mobile devices, where Facebook is less effective at generating revenue.