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Facebook Shakes Out Around $20: Henry Blodget

Thursday, 31 May 2012 | 2:15 PM ET

With investors wondering just how low Facebook will go, Wall Street’s Henry Blodget tells us FB could have another 20% of downside.

Blodget, who was a famed analyst during the dotcom bubble but was later banned from the securities industry and is now the editor of The Business Insider, believes the selling will abate when the stock trades around 20-25 next year’s earnings.

That would take the stock down to about $20.

“There are lots of possibilities for Facebook to become an incredibly powerful business. The future could justify the IPO price and a lot higher,” he admits.

“But we’re not seeing any signs of it now – all we’re seeing from Facebook is an advertising business that they’ve built and it’s decelerating rapidly – when I look at that, the valuation of 65 times consensus estimates versus Google at 12 times – it seems like too much of a premium.”

NYU professor of finance Aswath Damodaran shares the sentiment.

Is Facebook Wreaking Havoc on Capital Markets?
Is Facebook's poor performance hurting the IPO market? Henry Blodget, Business Insider editor-in-chief, discusses his perspective on initial offerings. The FMHR crew weighs in on the top trades to make today.

He tells us that the path of least resistance is lower, simply due to momentum. “I would expect to see Facebook drop for a while – because now people who were disappointed are getting out.”

Trader Stephanie Link thinks FB between $27 - $30 gets interesting but she adds, “you have to let the dust settle.” Considering the current environment she thinks the stock can easily be oversold.

And on a related note, Blodget tells us he thinks Morgan Stanley priced the IPO well.

Aside from the selective disclosure issue, which Blodget thinks the SEC needs to investigate, he says “They raised $16 billion. They got Facebook a very good price for the stock and on the first day any of their clients could have sold it for a gain. That’s what you want in an IPO.”

Posted by CNBC's Lee Brodie

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Trader disclosure: On May 31, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Guy Adami is long C; Guy Adami is long GS; Guy Adami is long INTC; Guy Adami is long AGU; Guy Adami is long MSFT; Guy Adami is long NUE; Guy Adami is long BTU; Pete Najarian is long AAPL; Pete Najarian is long AAPL CALLS; Pete Najarian is long C; Pete Najarian is long GDX CALLS; Pete Najarian is long INTC; Pete Najarian is long SBUX; Pete Najarian is long PEP; Pete Najarian is long FB; Jon Najarian is long FB CALL SPREADS; Jon Najarian is long DAL CALL SPREADS; Jon Najarian is long JPM CALL SPREADS; Jon Najarian is long GS CALL SPREADS; Jon Najarian is long VIX CALL SPREADS; Jon Najarian is long CIGX; Jon Najarian is long DDMG; Jon Najarian is long CME; Jon Najarian is long CBOE

For Charles Grom
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CNBC.com with wires.

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