NEW YORK (TheStreet) -- Facebook (FB - Get Report) is trading 1.9% lower to $49.18 ahead of rival social network Twitter's (TWTR) IPO on Thursday. By mid-afternoon, 54.7 million shares had changed hands compared to the three-month average daily volume of 88.42 million.
Twitter is expected to set the final price for its public debut later in the day. The micro-blogging service upgraded its price range earlier in the week to $23 to $25 a share from initial pricing between $17 and $20. There is chatter the stock could price as high as $27 per share. If the company prices at the high end of the $23 to $25 range, the company will be worth $13.6 billion.
Yet to turn a profit, the high valuation is sparking concerns it could replicate Facebook's IPO failure last year when the latter lost more than half its initial valuation within three months of its float. In the quarter ended Sep., Twitter reported a loss of $64.6 million compared to $21.6 million in the year-ago quarter.
Professional social networking site LinkedIn Corp (LNKD) has also dropped lower, losing 1.6% to $220.86.
TheStreet Ratings team rates Facebook Inc as a Hold with a ratings score of C-. The team has this to say about their recommendation:
"We rate Facebook Inc (FB) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and impressive record of earnings per share growth. However, as a counter to these strengths, we find that the company's return on equity has been disappointing."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- FB's very impressive revenue growth greatly exceeded the industry average of 9.4%. Since the same quarter one year prior, revenues leaped by 59.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
- FB's debt-to-equity ratio is very low at 0.04 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 10.37, which clearly demonstrates the ability to cover short-term cash needs.
- Powered by its strong earnings growth of 950% and other important driving factors, this stock has surged by 137.82% over the past year, outperforming the rise in the S&P 500 Index during the same period. Setting our sights on the months ahead, however, we feel that the stock's sharp appreciation over the last year has driven it to a price level which is now relatively expensive compared to the rest of its industry. The implication is that its reduced upside potential is not good enough to warrant further investment at this time.
- When compared to other companies in the Internet Software & Services industry and the overall market, Facebook Inc's return on equity is below that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: FB Ratings Report