NEW YORK – While Facebook (NASDAQ:FB) has continued its run in recent weeks, reaching an all-time inter-day high of $ 51 per share on Monday. Some analysts are beginning to question whether to the company is a good long-term investment at these prices.
According to a recent report by Aurora Analytics, they are recommending that investors sell half of their Facebook share to lock in profits as $ 51 per share for Facebook represents what Aurora calls a ‘high-risk situation.’ Under this approach, the shares will either move up, it there is interest from other investors – this will push an investor’s remaining shares up. Alternatively, the share price will drop, creating an opportunity to get back into Facebook at a more reasonable price.
Why is Facebook to high? In 2012, global ad spending was $ 529 billion, of which online spending accounted for $ 94 billion – $ 39 billion in the U.S. alone. This year, online ad spending is projected to rise by 12.7 percent; however, Facebook’s market share in the global ad market has remained in the 3 to 4 percent range. To compare, Google (NASDAQ:GOOG) holds more than 44 percent share of online ad spending – a gap that Facebook is unlikely to close anytime soon.
In addition, reports are starting to emerge that users are leaving Facebook, largely due to privacy concerns. The company is also losing ground to local competitors in India, Indonesia, and Japan and is facing increased competition from Google+ and Twitter. This does not include China, where Facebook is currently banned; at least officially.
Video Ads and Mobile Ads were supposed to be new revenue drivers for Facebook; however, the company is behind in its release of video ads, and it will face an uphill battle to eat into YouTube’s (another Google property) market share. According to reports, Google earned roughly $ 3 billion from YouTube last year, and it currently has more than 1 billion users every month. Furthermore, the content advantage is enormous as more than 100 hours of video are uploaded to YouTube every day.
So what does this mean? First, Facebook is not making significant inroads into markets dominated by Google. Second, its own revenue streams are highly leveraged as Facebook has to fend of new social media platforms, local competition, as well as Google+ and YouTube. As such, $ 51 per share might be a bit too high for Facebook and investors would be wise to lock in their profits, at least until after the next quarterly report is made.
Shares of Facebook opened down slightly in early trading on Tuesday.