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Market Preview: Facebook's Folly

Written by: Michael Baron 07/25/12 - 6:11 PM EDT
Tickers in this article: WFM AMZN SPY ^DJI ^GSPC ^IXIC ZNGA FB

"It is important to point out that the Fed could yet be swayed by the data that are due to be released just ahead of next week's meeting," he wrote. "We are not expecting any major surprises from this Friday's release of annualized GDP growth for the second quarter (both we and the consensus are forecasting 1.5%) or next Wednesday's release of the ISM manufacturing index for July. But if both were much weaker than expected, and if the GDP release included some sharp downward revisions to previous quarters' data, then the Fed may feel compelled to act."

As for Thursday's scheduled news, Facebook(FB) is slated to deliver its quarterly results after the closing bell. It will be the social networking giant's first-ever report as a public company and the stakes are pretty high after the company's disastrous IPO back on May 18.

Call it Facebook's folly as the company seems to have sold so much stock at such a high valuation out of the gate, the shares now have nowhere to go but down.

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The average estimate of analysts polled by Thomson Reuters is for Facebook to report a profit of 12 cents a share on revenue of $1.15 billion, and the sell slide is split ahead of the numbers with 19 of the 36 analysts covering the stock at either hold (17), underperform (1) or sell (1).

The bears just got a jolt of ammunition though after Facebook partner Zynga(ZNGA) reported a below-consensus profit after Wednesday's closing bell. The FarmVille maker also lowered its outlook, citing in part "a more challenging environment on the Facebook web platform," a comment that has investors bailing out on Mark Zuckerberg & Co.

The shares closed Wednesday at $29.34, down 23% from the IPO pricing at $38 each, and the stock was down more than 7% in after-hours action to $27.15.

Oppenheimer was already getting bearish on Facebook ahead of the Zynga news, saying Monday the move to increased mobile usage from the desktop was likely to result in softness in Facebook's second-quarter numbers.

"We expect US advertising will slow to 7% y/y growth from 27% in 1Q, with Int'l slowing to 32% growth from 48%, based on our analysis of desktop usage," the firm said. "The wild card is mobile, as we are not assuming the company is seeing ad revenues from new formats. However, we believe investor sentiment remains negative on the shares, with the stock reacting negatively to a recent comScore data release. For 2012, we estimate revenues in line with underwriters' and 1% below consensus."