- Bearish researcher has been short since last earnings report
- Facebook running out of ‘incremental buyers,’ Left says
Facebook Inc. is too expensive and will lose market share to competing social media platforms such as Snapchat, according to short-seller Andrew Left of Citron Research, who’s is betting the stock will decline.
Left has been borrowing Facebook shares and selling them, a trade that profits if they fall, since its most recent earnings report, he said in a phone interview. He cited concern about its ability to generate revenue through advertisements, as well as the migration of young users to other social media platforms.
“People are discounting the actual risks of Facebook, which by far does not have a monopoly on social networking,” Left said. “The stock could underperform the rest of the technology stocks this year. It’s tough to say what the stock is going to do, but they’re losing their relevancy.”
Facebook lost 2.7 percent to $113.49 as of 12:02 p.m. in New York, the lowest in almost two months. The shares, valued at 71 times trailing 12 month earnings, have added 9.3 percent in 2016 and are worth more than $325 billion, making it one of the 10 largest companies in the world. The S&P 500 Index is up 2.4 percent this year.
Facebook reported adjusted earnings of 77 cents per share in the first quarter, beating analyst estimates by 23 percent. Revenue was $5.4 billion in the first quarter, up 636 percent since 2011. A Facebook spokeswoman declined to comment on the short position.
Left gained fame in October when one of his reports, a bearish analysis of pharmaceutical giant Valeant Pharmaceuticals International Inc., came out just before the company’s shares plunged 40 percent on concerns about its drug marketing practices. Valeant has denied his claims. Before that, Left spent more than a decade operating his stock-commentary site, publishing more than 150 reports.
Left declined to give a target price or valuation for Facebook, saying only that it will lag behind its peers in the S&P 500 technology group in 2016 and that his opinion reflects a long-term view on the stock. Left’s position in the stock was reported by CNBC Monday morning.
“Advertising has to get related into consumer spending,” Left said. “Of course they’re going to be able to monetize Instagram and Facebook video and everything else, but you can’t discount viewership of YouTube and Snapchat. Anyone who has a teen knows you can’t discount the relevancy of Snapchat.”
Facebook’s shareholder base is getting crowded, according to Left, who said the shares are running out of “incremental buyers.” Bulls in the stock also are underestimating competitive threats.
“I’m not saying this is Twitter, but as soon as Twitter lost users, nobody cared about revenue anymore,” Left said. “It’s a company that was built on the network effect -- it can take you lower just as much as it can take you higher.”