Facebook for the long term?

Workers at the Facebook office in Menlo Park, Calif. Facebook has to figure out how to make more money from mobile users before its earnings will meet expectations.
Workers at the Facebook office in Menlo Park, Calif. Facebook has to figure out how to make more money from mobile users before its earnings will meet expectations. (JEFF CHIU / Associated Press, file)

Buyers willing to wait will gain, analysts say.

Posted: July 29, 2012

NEW YORK - Investors are dumping Facebook Inc.'s stock, spooked by slowing revenue growth, the lack of a financial outlook, and plans to spend more money in coming months.

Are they right?

Only if they are thinking in the short term. Investors can expect Facebook's stock to be volatile for a few years. But analysts say that those willing to wait will likely be rewarded - someday.

"I view it as a tomorrow stock," said Christian Bertelsen, chief investment officer at the wealth-management firm Global Financial Private Capital.

"The whole thing on Facebook is, look, if your time horizon is hourly, weekly, or even monthly, this is not the stock for you," he said. "You need to take a much longer-term view on it."

That's about three or four years, he said.

Founded in chief executive Mark Zuckerberg's Harvard University dorm room in 2004, Facebook was a product of the personal computer era. Now, in the age of mobile computing, people increasingly are accessing Facebook through their iPhones, Android gadgets, and tablet computers. Yet Facebook is only now starting to figure out how to make money from its mobile users.

"The company is going through an almost painful transition from desktop to mobile," Baird analyst Colin Sebastian said.

He called Facebook "a speculative investment," but one with plenty of potential.

"With almost one billion users, Facebook is amassing the most comprehensive user-profile database in existence," Sebastian said. That, he added, offers a "significant opportunity" to reap a big chunk of the global advertising market, which is currently at $500 billion a year.

Facebook's first earnings report since its rocky initial public offering May 18 was the second chance that didn't quite materialize. So investors sent the company's stock to its lowest level ever on Friday. Shares fell $3.14, or nearly 12 percent, to close at $23.70 after hitting $22.28 in the morning. The previous low was $25.52, reached June 6.

The stock dropped even though Facebook's second-quarter results met Wall Street's expectations, with revenue one-third higher than last year.

In the first quarter of this year, revenue climbed 44 percent, higher than the 32 percent increase in the second quarter. Following in Google Inc.'s footsteps, Facebook did not offer financial guidance for the coming quarters, which makes it a riskier bet for investors.

Facebook also said it planned to increase its investments in coming quarters. Higher expenses could mean lower profits.

Facebook, of Menlo Park, Calif., was valued at $104 billion when it went public two months ago. That means investors placed a higher value on its stock than that of established companies such as McDonald's, Pepsi, and even Amazon.

With Facebook's stock hitting a new low Friday, the company has lost as much as 39 percent of its value. It is now around $66 billion, a little more than 3M, the company that makes Scotch tapes, stethoscopes, and sandpaper. It's also in the same range as American Express.

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