Will Facebook Lag in the Second Half?
Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With all the fuss surrounding Facebook (NASDAQ: FB) these days, there's speculation that the stock may be headed way up or way down. Analysts have set price targets higher and lower than is probably possible, given that many of Facebook's developments will be longer term changes, if only because the company would have to initiate such a chance on a scale of nearly a billion users. For now, I think recent news justifies that Facebook may be right around where it's due to sit (with the possibility of a minimal rise). It's trading at just above $32, which is more or less in the middle of its IPO price and the lowest its fallen. With a P/E of over 100, there's certainly high expectations for the social media giant, but I don't think there's much to elevate the stock in the short term.
Take Facebook's news concerning mobile technologies. Facebook is working to improve its services in a safer and less controversial manner. People have complained about the slowness of Facebook's app for the Apple (NASDAQ: AAPL) iPhone, and the company is taking action to respond to this concern. Facebook is supposedly working on improving the speed of its iOS app by sometime in July. I bring this piece of news up to illustrate Facebook working against the taking-over-the-world mentality that some analysts seem to think Facebook should adopt. More specifically, it's working to refine its services instead of taking large risks that could break (or catapult) the company.
The company is celebrating some more definite good news though. A Nielsen/Netratings study has revealed that Facebook users have increased significantly in Japan over the last year. While Japanese Internet users frequently prefer using pseudonyms for social networking, Facebook is beginning to make its presence stronger in the country. One would hope that this trend continues, but this demonstrates that it has begun succeeding even in markets where it has a clear disadvantage. Potential investors may respond well to this, and Facebook may be in a position to continue gaining popularity worldwide.
Investors should not get too excited about the increased presence in Japan, however, as another study shows that Facebook is dropping in terms of unique U.S. visitors. This is only a slight drop, but some believe this is a trend that will continue in the long run. The downward trend has been going on for about six months now, but I do not think this is enough of a reason to believe it will simply continue that way.
In contrast, competitor Google (NASDAQ: GOOG) has celebrated good news about Google Plus. It recently held its Google I/O developer event, and it announced several details showing the success of Google Plus. More than 250,000 users have either upgraded or signed up for Google Plus, and more than 150,000 users are active every month. On average, furthermore, users spend roughly 12 minutes on Google Plus every day. While this has clearly not reached the widespread success of Facebook, it demonstrates that Google is making strides that could eventually make it a much stronger competitor. I think this recent announcement will have a positive effect on Google and a negative one on Facebook, especially with the reports about Facebook losing U.S. visitors.
Google's announcement may not affect Facebook too significantly, however, as some have noted, Apple and Amazon.com (NASDAQ: AMZN) were the main targets Google addressed at Google I/O. Most of the announcements addressed tablets, Google Play, and other products and services that would compete with Apple and Amazon. Facebook may be off the hook, therefore, but Apple and Amazon should watch for even greater rises in competition from Google.
A number of analysts have recently made new remarks about Facebook's future, and this could have a positive impact on Facebook. While some analysts gave the stock rather neutral ratings, no one gave it particularly bad ratings, and some actually gave it good ratings. At least in theory, this improvement in investor confidence should happen. In reality, investors remain unimpressed despite the rather positive comments from analysts. After the analysts published their predictions, Facebook stock actually dropped. It seems possible that after so many problems with the stock, investors are trying to make their own decisions about the stock.
Investors are not the only ones ditching Facebook, as Zynga (NASDAQ: ZNGA) has recently made an announcement that will reduce its current dependence on Facebook. It plans to release a system called "Zynga With Friends," so users will be able to play its games on any platform. This is not great news for Facebook, but I do not think it will have a huge effect on its stock price. While Zynga initially experienced drops in its stock price after the announcement, I think it will see gains in the future after this move starts improving business for Zynga.
While analysts tend to be optimistic about the company, investors and past partners are moving away from Facebook. It is rising in Japan, but it is falling in the United States, where it already has a solid customer base. I think the positive and negative events will probably cancel each other out. Based on the recent news, therefore, I would expect Facebook to bounce around the $32 mark, at least until certain developments grow a little clearer. I can see it getting to $35, but there is also the potential that Morgan Stanley can't keep propping up Facebook and it falls to around $30 and sticks for a bit. Either way, I expect a (relatively) tame quarter for Facebook's price. Even if it continues on with acquisitions and developments, they will be more in tune for the longer term health of the company.
StockCroc1 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Amazon.com, Facebook, and Google. Motley Fool newsletter services recommend Amazon.com, Apple, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.