June 11, 2012 at 15:51 PM EDT
Will the Facebook Stock Price Overcome This Latest Concern?
Facebook (Nasdaq: FB) and its struggling stock price have been in the spotlight since the company's IPO, but rarely for good news. This week started no differently. Besides its poor stock performance, Facebook already has been blamed for halting this year's IPO market. There hasn't been an IPO since Facebook debuted on May 17. Facebook also is taking heat for wreaking havoc on Nasdaq's reputation after technical glitches marred Facebook's debut. Nasdaq revealed last week that it will pay out $40 million in compensation damages to brokerages that lost money during the IPO fiasco . Finally, many investors claim they were misinformed on Facebook stock's first-day potential, and have initiated a class action lawsuit against the underwriters. Now the most recent bad news has cast even more doubts over whether or not Facebook can perform as well as investors expected. Has Facebook's Growth Reached a Ceiling? Over the weekend The Wall Street Journal ran a report on Facebook's growth slowdown, especially in the United States. Citing market research firm comScore Inc. (Nasdaq: SCOR ), the report indicated unique visitors to the Facebook Website in the United States increased just 5% in April from a year earlier. That was the lowest U.S. user growth rate since comScore started tracking the data in 2008. It compared very poorly to the data from the past two years, down from 24% growth in April 2011 and 89% in April 2010. The amount of time Facebook users spend per month on the site increased, but also at a slower rate than before. Facebook users' time-on-site was up 16% from a year earlier, compared to a 23% increase in 2011 and 57% in 2010, according to comScore. "The assumption that Facebook can maintain the 100% growth it reported Q2 2011 is no more plausible than the 45% growth it reported [earlier this year," said Money Morning Chief Investment Strategist Keith Fitz-Gerald after the stock started trading in May. "Google couldn't. Apple couldn't. And both of them are real businesses." It may be a matter of numbers limiting Facebook's growth rather than a changed perception or heightened dislike of the company. Facebook is estimated to have already captured 71% of the 221 million U.S. Internet users, leaving little room for U.S. growth. That is troubling as the U.S. accounts for approximately 56% of Facebook's 2011 ad revenue of $3.1 billion, according to the company's regulatory filings. Morningstar analyst Rick Summer stated that Facebook cannot expect to have the same post-IPO growth as Google Inc. (Nasdaq: GOOG) , due to the fact that Facebook already has a dominant market share of its industry and a very high number of Internet users. Summer suggested that increased ad pricing could drive future growth. "Facebook is already a dominant Web platform and they've got significant Internet penetration today," said Summer. "Ad pricing is clearly going to be where their growth is going to come from." To continue reading, please click here...
Facebook (Nasdaq: FB) and its struggling stock price have been in the spotlight since the company's IPO, but rarely for good news. This week started no differently.

Besides its poor stock performance, Facebook already has been blamed for halting this year's IPO market. There hasn't been an IPO since Facebook debuted on May 17.

Facebook also is taking heat for wreaking havoc on Nasdaq's reputation after technical glitches marred Facebook's debut. Nasdaq revealed last week that it will pay out $40 million in compensation damages to brokerages that lost money during the IPO fiasco.

Finally, many investors claim they were misinformed on Facebook stock's first-day potential, and have initiated a class action lawsuit against the underwriters.

Now the most recent bad news has cast even more doubts over whether or not Facebook can perform as well as investors expected.

Has Facebook's Growth Reached a Ceiling? Over the weekend The Wall Street Journal ran a report on Facebook's growth slowdown, especially in the United States.

Citing market research firm comScore Inc. (Nasdaq: SCOR), the report indicated unique visitors to the Facebook Website in the United States increased just 5% in April from a year earlier.

That was the lowest U.S. user growth rate since comScore started tracking the data in 2008. It compared very poorly to the data from the past two years, down from 24% growth in April 2011 and 89% in April 2010.

The amount of time Facebook users spend per month on the site increased, but also at a slower rate than before. Facebook users' time-on-site was up 16% from a year earlier, compared to a 23% increase in 2011 and 57% in 2010, according to comScore.

"The assumption that Facebook can maintain the 100% growth it reported Q2 2011 is no more plausible than the 45% growth it reported [earlier this year," said Money Morning Chief Investment Strategist Keith Fitz-Gerald after the stock started trading in May. "Google couldn't. Apple couldn't. And both of them are real businesses."

It may be a matter of numbers limiting Facebook's growth rather than a changed perception or heightened dislike of the company. Facebook is estimated to have already captured 71% of the 221 million U.S. Internet users, leaving little room for U.S. growth.

That is troubling as the U.S. accounts for approximately 56% of Facebook's 2011 ad revenue of $3.1 billion, according to the company's regulatory filings.

Morningstar analyst Rick Summer stated that Facebook cannot expect to have the same post-IPO growth as Google Inc. (Nasdaq: GOOG), due to the fact that Facebook already has a dominant market share of its industry and a very high number of Internet users.

Summer suggested that increased ad pricing could drive future growth.

"Facebook is already a dominant Web platform and they've got significant Internet penetration today," said Summer. "Ad pricing is clearly going to be where their growth is going to come from."

Facebook Stock Price (Nasdaq: FB) Looks for Rebound Despite those stunted growth numbers, Facebook is still the top Website in terms of hours spent on the site, known as engagement. Users spend over six hours per month on the site which beats out second-ranked Google, whose users spend over four hours a month on all Google sites, including YouTube.

Robert W. Baird, Needham & Co. and JPM Securities have all recently initiated a "Buy" or "Outperform" rating on Facebook stock.

Russell Investments announced on Monday that Facebook will join the Russell 3000 index.

The one-year median target price for Facebook is $40 with a low of $25. Facebook stock rose almost 3% Friday and was up nearly 2% Monday at $27.55. But the share price remains more than 30% from the high of $45 it reached on its first day of trading.

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