Will Facebook and Zynga Embarrass Analysts?
TheStreet's James Rogers ran down the post-IPO quiet period analyst coverage on Wednesday in an article titled "Facebook: Who's Saying What?"
The lowest price target I saw was $34 from Credit Suisse. Most came in somewhere between $38 and $45, with JP Morgan among the most positive.
My review of analysts' comments shows that they agree with me about Facebook's ability to leverage its size and create a wide-ranging ad network to challenge Google(GOOG) , and monetize its growing base of mobile users.
An even more bullish consensus encapsulates analyst sentiment toward Zynga. I won't bore you with details you've likely already seen, but price targets in the teens and reiterated "buy" ratings, particularly in defense of the stock after a selloff, are quite common. The analyst comments coincide with my bullish view on the stock.
On the surface, this might sound like a good thing. The big money agrees. What can be wrong about that? Well, we all know that you cannot necessarily trust what the big money says.
The Netflix(NFLX) experience from 2011 helps illustrate this point.
Consider what I had to say over at Seeking Alpha this past December about Goldman Sachs analyst Ingrid Chung's coverage of Netflix:
... has anybody heard from Ingrid Chung at Goldman Sachs? ... After Netflix's disastrous Q2 and weak Q3 guidance in July, Chung waxed bullishly, not only reiterating a buy rating and her $330 price target, but raising EPS estimates from 2011 through 2013.
Before you read this next sentence, call some family, friends or co-workers over to your computer screen, because there's nothing like sharing a laugh with others around the holidays. For 2012, Chung predicted Netflix would post EPS of $7.69.
While things seem to be a wee bit more optimistic, Netflix, according to its first quarter-letter to shareholders , expects to come in around break-even and possibly even post a loss. That's going to make $7.69 for the year next to impossible.
To be fair, Chung had plenty of company in being wrong. That said, I am not sure I have ever seen a worse performance than hers.
Luckily, throughout 2011, I was adamantly on the opposite side of the trade. But now, with regard to Facebook and Zynga, I find myself in agreement with the same crew of folks who touted Netflix. That leaves me slightly concerned.
Although this pause will not necessarily make me change my position, it does provide something investors should look for more often: a reason to re-evaluate their stance.