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Facebook Drops on Advertising Sales Growth Concern at BMO

Facebook Inc. (FB) tumbled to a record low on concern that businesses are spending less to advertise on the world’s largest social-networking website.

The shares of Menlo Park, California-based Facebook declined 5.4 percent to $18.06 at the close in New York. The stock has lost more than half its value since Facebook sold shares at $38 apiece in an initial public offering on May 17.

“Checks on near-term paid media spending remain challenged,” Daniel Salmon, an analyst at BMO Capital Markets Corp. in New York, said in a research report today. He has the equivalent of a sell rating on the stock and cut his price estimate on Facebook’s shares to $15 from $25.

Facebook may post $5.04 billion in sales this year, EMarketer Inc. estimated, down from the market researcher’s earlier projection for $6.1 billion as the biggest social network struggles to sustain advertising growth.

EMarketer, which made its earlier prediction in February, now expects revenue to rise 36 percent in 2012 and 31 percent in 2013, compared with an 88 percent gain last year. Growth in advertising, which makes up the majority of Facebook’s sales, will slow to 34 percent in 2012 and 29 percent in 2013, from more than 68 percent last year, New York-based EMarketer said.

Facebook is grappling with questions from marketers about how well ads on its site are performing, said Debra Aho Williamson, an EMarketer analyst. While Facebook says it is working with companies to show that the ads have an impact with its 955 million users, the social network must move more quickly, she said.

‘Still Hesitation’

Sales “haven’t been growing as fast as we and others had expected,” Williamson said. “There is still hesitation about the effectiveness of the advertising, about how much the advertising is worth.”

The reduced sales projection for 2012 brings EMarketer’s estimates to 2.4 percent more than the $4.92 billion average prediction of Wall Street analysts, according to data compiled by Bloomberg. EMarketer’s February estimate was 24 percent higher than the current average projection.

Last month, Facebook reported sales growth of 32 percent in the second quarter, down from 45 percent in the first quarter and 55 percent in the fourth quarter.

To contact the reporters on this story: Lisa Rapaport in New York at lrapaport1@bloomberg.net; Brian Womack in San Francisco at bwomack1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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