Peter Thiel, the first outside investor in Facebook, has sold off $28 million worth of stock in an insider trade. The sell-off is the most recent in a series of ominous news reports about the social media giant’s stock price.
On Wednesday, for about one hour, Facebook suffered an unexpected outage that peeved users, but also appeared to drop the stock by as much as two points. The stock recovered by Thursday, but the event showed that the stock is vulnerable to the unpredictable realities of the internet.
Janney Capital Markets also did its part to throw shade on the stock’s future, downgrading it from “buy” to “neutral.” The main reason for the downgrade is doubts over Facebook’s future revenue growth.
According to the Wall Street Journal, Facebook’s revenue growth is expected to decline from 61 percent to 35 percent year-on-year from the second quarter of 2014. That growth is still excellent, and most companies would kill to be gaining at that rate. Plus, Facebook still has Whatsapp and Instagram to monetize in the future.
Nevertheless, Janney Capital notes that internet stock price correlates closely with revenue growth, and any decline could significantly hurt the price, which is already at a huge premium.
Similarly, TheStreet has tempered its enthusiasm for the social media giant because of the stock’s high price. In the past 12 months, Facebook’s stock has risen 84 percent. Not even the high-profile, and particularly expensive, acquisition of Whatsapp dented the surge. Now the question is how high can it go?
The valuation investors are making might already be shaky. The company market value is at about $200 billion. Using that figure, Facebook’s stock is trading at about 12 times its estimated 2015 revenue, but that’s not including the stock from the Whatsapp deal. When those shares are also included, the ratio goes from the already high 12 times 2015 revenues to 13 times.
With that sort of a premium, very high growth figures are a requirement.
In the end though, the insiders may now the situation better than anyone else. That Peter Thiel, who was played by Wallace Langham in the movie The Social Network, would seem to be hedging against a future Facebook decline might be enough to dissuade the public.
Facebook COO Sheryl Sandberg also recently sold off Facebook stock worth about $21 million on August 25, according to the Intercooler.
Still, investors may be interested in holding the stock for the long term to see what happens as Facebook looks to integrate Whatsapp and Instagram into its future revenues.
[Image Credit: Brian Solis/Flickr]