Facebook shares drop after Barron's snub

Though Facebook's stock has plunged since its May IPO, Andrew Bary at Barron's said the stock trades at "high multiples of both sales and earnings, even as uncertainty about the outlook for its business grows."

At issue is the shift of Facebook's massive user base to mobile devices. The company is still figuring out how to advertise to people who use their mobile phones and tablet computers to access the social network. Bary said success in the mobile space is "no sure thing" for the company. Mobile ads must fit into much smaller screens, which doesn't give Facebook "much room to configure ads without alienating users," Bary said.

Facebook also has what Bary called "significant" stock-based compensation expenses. Last year, the company issued $1.4 billion worth of restricted stock and $1 billion so far this year, he noted. Yet technology companies such as Facebook "routinely encourage analysts to ignore stock-based compensation expense and most comply. This dubious approach to calculating profits is based on the idea that only cash expenses matter," Bary wrote. "That's a fiction, pure and simple."

Menlo Park, Calif.-based Facebook's stock fell $2.03, or 8.9 percent, to close at $20.83 on Monday. The company went public on May 18 at a share price of $38, which it has not matched since.

Bary said he thinks Facebook's stock is worth $15, well below its current price even with Monday's drop.

"That would be roughly 24 times projected 2013 profit and six times estimated 2013 revenue of $6 billion, still no bargain price," he wrote.

Facebook declined to comment.

Last week, research firm eMarketer said it expects Google Inc. to surpass Facebook in U.S. display advertising revenue this year. In February, eMarketer predicted Facebook would stay ahead of Google. The social networking company had surpassed Google in 2011. But Facebook's ad revenue has fallen short of the expectations eMarketer set in February.

That said, some analysts are still bullish on Facebook. Last week an analyst at Cantor Fitzgerald started coverage of its stock with a "Buy" rating and a target price of $26. The analyst, Youssef Squali, said he's "positive on the stock long-term" despite its botched IPO and the worry that Facebook's stock will be held down as employees become eligible to sell their stock in the coming months.

"We see significant opportunities ahead of Facebook, largely from brands moving online seeking mass reach and user engagement and from the explosion of mobile advertising in the next 2-5 years," Squali said in a note to investors.