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Why Facebook Is Only Worth $25 a Share

Chris Ciaccia

NEW YORK (TheStreet) -- Facebook FB seemingly makes new new lows almost every day, having fallen nearly 20% since its IPO. The uncertainty surrounding the company has caused one analyst to say the company is worth even less than it's trading at Monday.
Bernstein analyst Carlos Kirjner said he believes investors will question Facebook's ability to generate 2013 revenue near consensus, especially as revenue growth slows.
"While this deceleration may ultimately prove to be a temporary setback if, over time, Facebook manages to improve monetization of its inventory (both PC- and mobile-based) and maximize the value of social advertising, it will likely drive additional downside pressure on the stock beyond what is already reflected in our price target," Kirjner wrote in his note. He has a $25 price target on shares and initiated coverage with an underperform rating.
Facebook is likely to grow its revenue share of the display advertising market from 9% currently to about 18% by 2017, unless it proves to be "fundamentally disruptive," the analyst said. That would put 2017 revenue at about $17 billion. Advertising display revenue would grow 38% year-over-year in 2012, and 32% in 2013, much lower rates than Facebook's ad revenue has grown in the past. This makes the display advertising portion of the business worth $21 per share.
Even though Kirjner has a target of $25 on Facebook, he does note that social advertising may indeed prove disruptive, and the company could be worth considerably more if it were to have a similar revenue trajectory to Google GOOG .
If advertising revenue grows 74% year over year for the next three years and 22% per annum over the next 14 years, Facebook could have an enterprise value of $79 billion, or $33 a share.
There is also the matter of Facebook's social graph and the businesses that could be built upon this, which Kirjner believes could be worth $4 a share, but has the potential for much more.
"Comparing the information assets Facebook controls with other rich consumer data sets such as those assembled by the credit bureaus suggests that the option to develop new businesses could be worth up to $52 billion," Kirjner wrote.
Shares of Facebook are sharply lower Monday, off 3.43% to $26.77.
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--Written by Chris Ciaccia in New York
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