Is Facebook's stock priced for perfection?

Published Thu, Jul 30 20154:24 PM EDT

There are only so many hours in a day. Facebook investors may need to realize this. On average, users spend more than 45 minutes on the platform, an unprecedented amount of time for a digital property and likely hard to extend much further. At 1.5 billion members worldwide, there are only so many people on earth to recruit to the social network. And with the shares up 20 percent this year and trading at more than 90 times trailing 12-month earnings, it may be the classic case of a stock priced for perfection, vulnerable to a pullback on any hiccup in growth. Facebook shares traded higher as its earnings conference call began Wednesday, but then reversed lower after David Wehner, chief financial officer, said the following: "Since the first quarter of 2014, we have seen year-over-year advertising revenue growth rates decline each subsequent quarter. We expect this trend to continue in Q3 and Q4 (second half of 2015) as we continue to grow off a much larger base." Facebook's ad revenue grew at a 43 percent rate year-over-year in the second quarter. This is down from 82 percent growth in the first quarter of 2014. This emphasis by management on a deceleration of the growth rate due to the law of large numbers continued to keep a lid on the shares the rest of the call, a possible sign of things to come for Facebook shareholders. In their notes Thursday, Wall Street analysts focused greatly on that threat. "Solid results continue, but valuation and expectations continue to prevent us from recommending FB," said Evan Wilson of Pacific Crest Securities. Read More Stock market highs hiding 'bloodbath' within Want an even more impressive stat on Facebook's dominance of our time? According to the company, one out every five minutes of U.S. smartphone usage is on Facebook or Facebook apps. "FB has enjoyed strong ad revenue growth from the ramp in mobile newsfeed ads over the last few quarters, but growth rates are likely to decelerate given the bigger base of the mobile business already," said Deutsche Bank's Ross Sandler. In a phone interview, Monica Peart of eMarketer said she expects "an additional 50-60 million" monthly active users for Facebook in the back half of the year. This would be lower than previous years and the 97 million added in the first half of this year. Peart expects to see "maturity for (Facebook's) growth rate as the platform has grown quite large." To be sure, Mark Mahaney of RBC Capital believes Google in its heyday is a great comparison to the situation Facebook finds itself in today. He notes that Facebook's growth metrics and high margins resemble closely Google's fundamentals eight years ago. This combination of growth and profitability "only happened once before in Internet history—GOOG in 2007," wrote Mahaney in his note Thursday. "And just like GOOG in 2007, we see in FB plenty of strong, secular, platform growth ahead." Read More Street: Buy steady stocks for a skittish market That may well be true for long term, but for now, it may be time for Facebook's stock to take a breather. Before the earnings report, the consensus analyst 12-month price target was $97 a share, according to FactSet, just $2 higher than where the stock trades today. Said Wilson of Pacific Crest, "Multiple expansion is difficult given the sad state of FB's comparable group and that consensus estimates seem to already be factoring massive market share gains."

David Paul Morris | Bloomberg | Getty Images

There are only so many hours in a day.

Facebook investors may need to realize this.

On average, users spend more than 45 minutes on the platform, an unprecedented amount of time for a digital property and likely hard to extend much further.

At 1.5 billion members worldwide, there are only so many people on earth to recruit to the social network.

And with the shares up 20 percent this year and trading at more than 90 times trailing 12-month earnings, it may be the classic case of a stock priced for perfection, vulnerable to a pullback on any hiccup in growth.