There is a debate among some analysts over whether Facebook Inc. (NASDAQ: FB) is worth buying or may be turning into a sell. On Wednesday, J.P. Morgan analyst Douglas Anmuth reiterated an Overweight rating and an $80 price target on the stock. On Monday, Argus Research cut its rating on the stock to Hold from Buy, although it maintained a $73 price target.
Source: courtesy of Facebook Inc.
J.P. Morgan’s Anmuth is bullish on Facebook because of strong growth in its mobile business. Its share of mobile minutes grew 22% year-over-year in February, compared with 21% in January and 20% in December. The gap is widening against other services, including Twitter Inc. (NYSE: TWTR), the Facebook-owned Instagram, Snapchat and Whatsapp, the service Facebook is buying for $19 billion.
Facebook had 142 million users in February, according to comScore. That is up from 138 million in January and 111 million users in February 2013. Instagram had 47 million users and Twitter had 43 million.
“We believe advertiser demand in the quarter continues to build and comScore data suggests continued strong engagement,” Anmuth’s note said. Plus, Facebook should get a boost from the launch of video ads, expected in late April or early May. The ads should “should bring more brand dollars” to Facebook.
Argus, meanwhile, is mostly concerned about one issue. Can Whatsapp develop a user base up to 1 billion?
If those billion users fail to materialize, Facebook would be looking at a substantial write-down, a clear negative for Facebook shares. We will be paying close attention to WhatsApp’s net user addition data in the face of competitive threats.
A second issue is potential security flaws in the WhatsApp platform. Argus actually maintained $73 price target on the stock and sees 2014 earnings per share hitting $1.21 and $1.53 a share in 2015. It does concede that its downgrade may be premature, especially in the video ads prove to be winners.
Investors appeared to be siding with Argus on Wednesday. Facebook shares were down $1.13, or 1.6%, to $68.06 in morning trading. The shares are up 24% this year. The 52-week range is $22.67 to $72.59. The consensus price target is $73 66, not far from Argus’ target.
Meanwhile, Facebook is trouncing Twitter’s share performance. Twitter shares are back down to about $51.00. The microblogging platform’s stock peaked at $74.73 back on December 26. Its stock closed out 2013 at $63.63, so the shares are down a hair under 20% so far in 2014. Twitter’s consensus price target is only $50.96.
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