Not all of Wall Street "friending" Facebook

Wed Jun 27, 2012 5:56pm EDT
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By Noel Randewich and Edwin Chan

SAN FRANCISCO (Reuters) - Facebook Inc may be having trouble connecting with Wall Street.

Banks behind Facebook's initial public offering kicked off formal coverage of the social network on Wednesday by warning about its uncertain business model, margin pressures and a difficult transition to mobile technology.

Of 17 brokerages that issued research reports, only eight recommended that investors buy Facebook shares, including Morgan Stanley, Goldman Sachs and JP Morgan - the Internet company's three lead underwriters. Eight brokerages gave neutral ratings and one had a "sell" rating.

The panoply of neutral or equivalent ratings is notable because Wall Street research analysts have a reputation for favoring "buy" ratings, particularly in the high-profile Internet industry where "buy" or equivalent recommendations outnumber "hold" ratings nearly 2 to 1, according to Thomson Reuters Starmine data.

"It says there are real questions out there about the strength of this business model, the fundamental strength of this company, together with its valuation," said Tim Ghriskey, a portfolio manager at Solaris Asset Management.

"We're not buying right now, that's for sure."

Facebook shares fell 2.6 percent to close at $32.23 on Nasdaq, remaining far below their IPO price of $38.

The reports, released by banks involved in the IPO after a 40-day quiet period expired, represent Wall Street's broadest assessment of Facebook, the first U.S. company to debut with a market value of more than $100 billion.   Continued...

Facebook logos on a computer screen are seen in this photo illustration taken in Lavigny May 16, 2012. REUTERS/Valentin Flauraud