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Facebook Inc (FB) Teen Exodus Should Keep Investors Away From Stock

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As report after report continues lamenting the fact Facebook Inc (NASDAQ:FB) is losing the younger generation, investors have turned content with the stock. Does a disconnect exist between older investors and the younger crowd? Or is it possible that Facebook Inc (NASDAQ:FB) can overcome the loss of the younger crowd unlike other social networks in the past such as MySpace?

The social network leader is now facing pressure from numerous sources that are attracting users especially in the younger generation. Teens are flocking to micro-blogging sites like Tumblr and Pheed and to image sharing sites like Instagram and Snapchat. Not to mention, users around the world are moving to messaging alternatives such as Kik and WhatsApp in the US to WeChat in China and KakaoTalk in Korea. Users as well are being pulled into social sites that connect them with similar interests such as StockTwits for stock traders and Pinterest for sharing fashion related items.

Another interesting dynamic is that the other CEOs of the social networking sites that went public at the same time as Facebook Inc (NASDAQ:FB) have already been replaced. Zynga Inc (NASDAQ:ZNGA) just announced the replacement of founder Mark Pincus and Groupon Inc (NASDAQ:GRPN) has soared after replacing its founder several months back. The below chart shows how the lagging sites are quickly outperforming now that new management controls the company:




FB Total Return Price data by YCharts

Analysts remain bullish

In early June, both Goldman Sachs and Piper Jaffray had bullish notes on the largest social network. In fact, Goldman has a $40 target for Facebook Inc (NASDAQ:FB), a level 60% above current prices. To reach that price target, the stock would be valued at an incredibly high $95 billion. The average analyst only forecasts revenue of $6.7 billion this year giving an indication of the bullish gap between analysts and teens. If all of the reports are accurate about the network losing the most prized user base, then why do analysts remain so bullish on the stock?

The main point used by analysts is that the company can continue increasing monetization of existing traffic. While true, more ads could lead to a faster exodus of users. Stocks typically don’t maintain lofty revenue multiples when the user base has peaked or is even in decline. Another interesting concern with the analyst group is that the typically older user base is still growing, suggesting that potentially the analysts are biased by what could be higher usage by their group of friends on the network.

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