At $20 Is Facebook a Value? Insights from Henry Blodget

Back in May, Henry Blodget told us Facebook should trade $20, not $38 the IPO price. What does he have to say now that it's close to that level?

“The lower FB goes the more attractive it gets,” he tells us in a live interview on CNBC’s Fast Money Halftime Report. “At $20 the stock is moving into a reasonable range – that’s between 25-30 times earnings. “

Back in May, shortly after the IPO, Blodget, editor of The Business Insider, told us to watch for declines in FB because he felt valuations were ridiculous. That is, he felt people were paying too great a premium. (Click here to go to Facebook Shakes Out Around $20: Henry Blodget - from May 31st)

And he said when it hit $20, he thought shares would stabilize.

But that was 2 months ago, before the company's earnings report showed operating margin was negative 63 percent during the second quarter and that capital expenditures had increased 213 percent from a year ago to hit $413 million.

Are shares about to decline a lot more?

Blodget doesn't think so. “Facebook is tied to something meaningful,” he says. It’s a leader in social networking and that leadership role makes it worth some premium.

“At $20 the stock is reasonably priced with expectations of earnings of 65 cents a share.”

However, just because the stock is reasonably priced doesn’t mean it’s a buy.

Blodget believes the catalyst will be a turn in fundamentals. “Right now margins are going down and sales are decelerating,” he says. Only when that turns, can shares march higher.

And even when it does happen, don’t expect Facebook to turn into a mojo stock. Blodget says that’s not happening.

“I think Facebook is in a multi-year period where the stock will adjust from hyper-growth to a company that settles into a long term growth rate that’s much more modest. That process is terrible for shareholders, Microsoft , Google, and Amazon all went through 5-7 year periods where they all moved sideways. And I think Facebook is right in the middle of that.”

* Henry Blodget was a famed analyst during the dotcom bubble who was later banned from the securities industry and is now the editor of The Business Insider.


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Posted by CNBC's Lee Brodie

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