Facebook shares tumbled to new lows Friday as two analysts from firms that underwrote its IPO cut their price targets on the shares.
Analysts at Bank of America-Merrill Lynch and Bank of Montreal slashed their targets on Facebook 34% and 40%, respectively, though they cited different reasons for the cuts.
Facebook shares sank 95 cents , or 5%, to $18.14 --a new low--Friday. That puts the shares at about 52% below their initial-public-offering price.
Bank of America analyst Justin Post dropped his target on the shares to $23 , still about 25% above the social network's current trading price. He cited pressure in the short term from the looming expirations of "lockup" agreements that had prevented some early investors and company insiders from selling shares. But on the plus side, he noted the potential for new advertising formats to help drive revenue growth next year.
"We remain constructive on FB's opportunity to drive an acceleration in revenue growth from new ad formats," Mr. Post wrote Friday. "We see the success of new ad formats as paramount for the stock."
However, "recent selling activity on the August lockup suggests to us the risk of future selling pressure," he said. "And we wouldn't expect [the] stock to see buying momentum until December."
Facebook stock fell 6.3% on the day an August expiration made 271 million shares eligible for trading, adding to the 421 million already in the market at the time.
The next Facebook lockup expiration comes Oct. 15 , when another 249 million shares will be freed up. The biggest expiration will take place Nov. 14 , when 1.32 billion shares--including shares held by Facebook Chief Executive Mark Zuckerberg --become available for trading. Dec. 14 will free up 149 million more, with the final 47 million shares available for trading freed up in May.
Meanwhile, BMO analyst Daniel Salmon sees more challenges for Facebook beyond the lockup expirations. It might be hard for the company to meet a 4% revenue- growth target in the third quarter, he said.
"We expect investor attention to return to fundamentals after the technical challenges presented by lockup expirations over the next six months have been absorbed by the stock," said Mr. Salmon, who cut his target to $15 --18% below Friday's trading level--and reduced his third-quarter revenue target to flat. " Valuation is underpinned by revenue growth, and we believe flat 3Q sequential growth would be met with a step down."
Mr. Salmon rates Facebook at "underperform," while Mr. Post maintains a " neutral" rating on the shares.
BMO's $15 target is by far the lowest of the 22 analysts with estimates, according to FactSet data. The average of all targets is a price of $33.27 , more than 80% above Friday's trading level. The next-lowest Facebook target is $20.30 from Axia Financial Research . Oppenheimer's Jason Helfstein and Piper Jaffray's Gene Munster have the highest targets at $41 .
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