Facebook’s lead investment bank Morgan Stanley released its first research report on the stock this morning.Morgan’s clients are probably not going to like it. Analyst Scott Devitt and his team start the company at “overweight” but only have a $38 12-month price target.
That means they are telling people who bought the IPO at $38 they made a mistake. In a year, Devitt thinks Facebook will be worth the IPO price.
This is embarrassing for Morgan’s bankers who sold the deal, but at least it shows there is independence at the bank.
As for why Morgan has a $38 price target, there’s not much to it. The note basically says Facebook will keep on keeping on:
Our base case scenario assumes that Facebook’s revenue growth moderates as it takes a measured approach to increasing mobile ad load while engagement increasingly shifts to mobile devices. Facebook enters an investment cycle characterised by compressed adjusted operating margins in C2012/13E. Facebook grows total revenue at a +28% CAGR from C2013-16E, while advertising revenue (+31%) grows substantially faster than payments revenue (+17%) due to casual games being played increasingly through mobile devices. We forecast C2013E adjusted EBITDA margin of 60% in this scenario.