For Facebook, doubt grows on Wall Street

The social network will be unable to show its burgeoning mobile audience enough ads to compensate for desktop-to-mobile migration, investment research firm BTIG said in a report published today.

"We suspect the more consumers shift to mobile, the less total time they are spending with Facebook," BTIG media analyst Richard Greenfield said in the report. "We struggle to believe Facebook can continue to ramp the ad load on mobile the way they did in Q4 2012."

The firm, which today downgraded Facebook from a "neutral" rating to a "sell" rating, believes mobile-ad growth slowed in the fourth quarter and that Facebook sidestepped reporting those figures in its fourth-quarter earnings report to avoid showing the slowdown.

Greenfield estimated that Facebook averaged $3.4 million per day from its mobile-ad units by the end of the fourth quarter. The figure, if accurate, would show a less-than-impressive 12 percent change from the previous quarter when Facebook said it was making $3 million per day from ads running in members' mobile News Feeds.

"Given that Facebook clearly gunned the ad load in the news feed during Q4, benefited from a seasonal tailwind, an unknown amount of political advertising, the introduction of sponsored posts ... and the launch of app install ads, it is hard to believe the daily mobile advertising revenue did not average more than $3.4 [million] per day," Greenfield said.

BTIG also set a new target price of $22, which means it thinks Facebook's best days on the market are behind it. That could be so. Doubt around Facebook seems pervasive on Wall Street, where investor inquietude with the company's financials and runaway 2013 spending projections have halted the social network's climb back to its IPO price of $38 a share.

Heading into its fourth-quarter earnings report, Facebook earned back more than 60 percent of lost value, shooting from around $19 a share to more than $31 a share in 90 days' time. But in the two weeks since Facebook reported adjusted earnings per share of 17 cents and revenue of $1.59 billion for the fourth quarter, the company has wavered from its position of strength. Shares today are trading around $27.50, down about 12 percent from Facebook's January 30 close of $31.24.

The slide backward, though not anywhere near as dramatic as Facebook's post-IPO free fall, is a disconcerting change of circumstances that exposes just how uncertain investors and analysts are about the company's long-term ability to make money from its mobile audience, which stands at 680 million people.

It doesn't help that the desktop, where Facebook generates a majority of its revenue, is being abandoned by the 1.06 billion people who use the service each month. Facebook's mobile daily active users exceeded its Web daily active users in the fourth quarter, the company said. As such, Greenfield expects desktop revenues to peak this year.

"We believe desktop revenues will ... begin to decline in 2014 and beyond, putting increased pressure on the growth trajectory of mobile revenues," he said.