The Wall Street analyst who has accurately predicted Facebook Inc.'s big stock swings just offered a sour view on the social network's near-term future.
BMO Capital analyst Daniel Salmon slashed his investment rating to market perform from outperform, while keeping his price target at $50. The call comes after Facebook reported upbeat quarterly results, but spooked investors with warnings related to future revenue growth.
Facebook executives gave a one-two punch on a conference call with analysts when they warned that U.S. teens are spending less time on the site and cautioned that they may not be able to put more ads into users' news feeds.
Shares dropped as much as 5.1% to $46.50 Thursday morning on heavy trading volume. The stock, which peaked above $50 earlier this month, is up more than 80% this year.
UPDATE: Shares turned around and recently jumped more than 3% in choppy trading.
Mr. Salmon says he's concerned that Facebook lacks a "new story" to keep the stock rallying from current levels. "We are changing our rating primarily because of the lack of visibility around Facebook's opportunity in social TV advertising," he says.
He referenced comments Facebook COO Sheryl Sandberg made last quarter, when she highlighted how as many as 100 million users spend time on Facebook during prime-time TV hours. However she made no mention of that opportunity in Wednesday's conference call.
His contrarian call came after more than a dozen analysts increased their Facebook price targets on Thursday. Analysts generally offered mostly positive viewpoints about the company's future advertising business.
Mr. Salmon made a name for himself last year when he was the most bearish analyst among those at the banks that underwrote Facebook's IPO. When the stock was in the low $30s in June 2012, he slapped an "underperform" rating and a $25 price target on Facebook. Three months later the stock traded as low as $17.73.
Another big call came on May 30, when he boosted his rating to "outperform," the equivalent of a buy recommendation. That call came less than two months before the stock price surged over the summer following upbeat quarterly results and improved traction in mobile-ad sales.
But now, Mr. Salmon is taking a more cautious view of the stock at least over the short-term. Here's why:
"We had previously foreseen three catalysts for Facebook: 1) expansion of video ads on the platform (reportedly delayed again, but not a big deal to us so long as something new is revealed before the spring TV Upfront season); 2) Instagram advertising (already getting under way, with 10 advertisers testing); and 3) Social TV. We believe the opportunity for the first two catalysts has largely been reflected in the stock as it has moved to the $50 level. To go to the high $50s, we feel a new story is needed to support the multiple."
Until that "new story" appears, Mr. Salmon advocates investors take a cautious approach to Facebook.
"With no news on expanding video ad formats and nothing on the Social TV opportunity, it's impossible for us to get incrementally positive on Facebook's branding opportunity beyond its excellent position in mobile," Mr. Salmon says.
