Mike Isaac

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Amid Lukewarm Wall Street Ratings, BMO Goes Bearish on Facebook

After Facebook’s rocky first month on the market, it’s not entirely surprising that the Wall Street analysts who ushered the company through its IPO are still mostly positive on Facebook’s outlook.

Of the 18-odd banks involved in the underwriting process, nearly half of them gave Facebook a “buy” rating on Wednesday, the first for these firms since the end of their mandatory 40-day quiet period following the offering.

But one such underwriter, BMO Capital, wasn’t having it. The firm gave Facebook an “underperform” rating with a price target of $25, nearly a 35 percent reduction from the stock’s initial $38 IPO price. It stands alone as the most negative rating against a backdrop of cautiously optimistic new estimates.

BMO cites reasons that many — including Facebook in its S-1 filing — have already raised as cause for concern, including a decreased outlook on user growth as the site reaches close to one billion users. There’s also the problem of Facebook’s questionable advertising model, made especially problematic by the migration of active users moving toward mobile devices, a platform yet to be monetized effectively.

They’re a valid set of concerns, and ones that Facebook seems to be taking seriously. The company has been on an acquisition spree for mobile applications and talent, potentially aiming to bolster its small but promising e-commerce system with the recent acquisition of Karma.

Facebook’s stock was down 2.63 percent at the close of business on Wednesday at $32.23, though it’s still up seven points from its all-time low of $25.52.

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Just as the atom bomb was the weapon that was supposed to render war obsolete, the Internet seems like capitalism’s ultimate feat of self-destructive genius, an economic doomsday device rendering it impossible for anyone to ever make a profit off anything again. It’s especially hopeless for those whose work is easily digitized and accessed free of charge.

— Author Tim Kreider on not getting paid for one’s work