Why Facebook's Lock-Up Surge Won't Last
Technology Editor, CNBC.com
The fact that Facebook's stock jumped after shares were unlocked Wednesday doesn't really matter because the company's mobile advertising problem will ultimately cause the stock to drop again, said Richard Greenfield, BTIG analyst.
"There has been a lot of focus around the lock date really since this company went public. The reality is the stock is still down very sharply from where it went public," Greenfield said Wednesday on CNBC's Squawk on The Street.
"The issue of why you want to be short this stock and we are telling clients to sell Facebook at these levels ... is really because of the challenge of mobile," Greenfield said.
About 800 million Facebook shares had restrictions lifted, or were unlocked, Wednesday allowing for early investors and company employees to sell their shares if they wish. It was the biggest block of shares unlocked since the company's IPO in May.
Greenfield, who has a $16 price target on Facebook's stock, said he expects slow growth for the company in 2013 and 2014.
As the world shifts to mobile, Facebook's current mobile advertising strategy, which includes showing sponsored stories in a user's newsfeed on their device, is simply not enough to support the company's current valuation, Greenfield said.
And what's more, said Greenfield, when it comes to pushing local advertisements to consumers on mobile devices, the social network falls short to its competitors because it is generating targeted ads based on data that just isn't that accurate.
"Facebook doesn't control your device, they don have the operating system, the operating system on mobile is really just two companies. One is Google with Android and the other isApple with iOS. Those are the companies that really know everything about you," Greenfield said.
Facebook, though, uses data pulled from a users' profile and the user's interactions on the platform, which is not the most accurate way to target local mobile ads, Greenfield said. Part of the reason Facebook is struggling and will continue to struggle in advertising is because its focus has shifted.
While Facebook went public with the intention of connecting the world to better connect consumers, its goal now is to make money, which has caused Facebook to not be as stringent in its policies as to how other companies advertise on the platform, Greenfield said.
"We are seeing companies that are being offered the opportunity, like Wal-Mart, to leverage Facebook, and we are seeing them push very, very hard for "likes" and really almost to add spam towards consumers," he said.
But more than just allowing bad advertising from companies on its platform, Facebook itself just isn't the best competitor in the mobile advertising space, Greenfield said.