Analysts Question the Value of Facebook’s Shares

While the momentum from the post-election rally tapered in recent days, a growing number of analysts have begun to be concerned about the prospect for Facebook. The current consensus earnings forecast for the company is $1.12 for the quarter ending December 2016.  But the forecast falls to $0.89 for the quarter ending March 2017.

The fall has some analysts scratching their heads and asking whether Friday’s opening price of $117.40 is worth it. In fact, J.C. Parets of All Star Charts has already issued a warning for the company, calling the stock’s current trend a ‘disaster’.

Yes, shares of Facebook have gained ground since the since the election. But the movement has been uneven and as of the Friday before Christmas, the stock was trading off its post-election highs of $121.77 which was reached on November 21. Even that high was well off its three-month high of $133.28 posted on October 28.

That being said, the company has performed well over the past year. Shares of Facebook opened the year at $102.22, so it has made money for investors this year. However, Facebook has underperformed the broader market, which is on pace to post gains of 14% for 2016.

Why is Facebook underperforming?

Facebook Headquarters
Stock Photo: MENLO PARK, CA – MARCH 18: A sign at the entrance to the Facebook World Headquarters located in Menlo Park, California on March 18, 2014. Facebook is a popular online social networking service. (Katherine Welles /

What is unclear at this point is why Facebook’s shares have underperformed the broader market. Part of the reason might be that the company is closely tied to other technology stocks which faces a certain amount of regulatory uncertainty.

Net Neutrality

This uncertainty is tied to increasing odd that the Federal Communications Commission (FCC) which looks set to reverse its stance on ‘Net Neutrality’.  While such a decision might not impact Facebook as much as companies like Netflix, it will impact the sector and this is likely to weigh on the both companies.

User Growth

Another issue which might be impacting Facebook’s prospects is user growth. The company currently boast nearly 1.8 billion users, but growth is slowing and Facebook is effectively locked out of the all-important Chinese market.  Slowing growth could impact profitability, especially as advertisers cut back on their marketing spend with the company.

Fake News

Yet another issue which is impacting sentiment on Facebook is the specter of fake news and online bullying. For all of Facebook’s benefits, it has done little to stop either and some observers believe the company made be an unwitting enabler.

Tax Liabilities

Then, there are potential tax liabilities, privacy concerns, and unforeseen challenges to the company’s dominance in the social media space. If anything, this points to the need for the company to continue to refine and innovate its business model.  However, this becomes much harder when trying to manage a $330 billion global corporation.

This does not mean that Facebook is not a buy. In fact, very few analysts have issued sell opinions on the company. But the charts and some of the associated warnings do point to caution going forward.