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Facebook Inc. (FB-Q) drew tepid assessments from Wall Street's top analysts a month after its rocky stock market debut, as warnings about an uncertain business model and a difficult transition to mobile helped send its shares down.
In more than a dozen highly anticipated reports, Morgan Stanley and other major brokerages that handled the blockbuster IPO said it remains unclear how Facebook plans to make money from a growing number of users logging onto the No. 1 social network via smartphones and tablets.
Most analysts expected Facebook's large user base to help it corner a substantial share of the Internet advertising market. But almost half of the ratings released on Wednesday were "hold" or the equivalent -- despite the shares trading sharply down from their $38 IPO price.
The reports, all from banks involved in the highly anticipated but poorly executed IPO, represent Wall Street's most broad-based assessment of Facebook, the first U.S. company to debut with a market value of more than $100 billion.
The 33 banks that participated in the stock listing were required by securities regulations to wait until 40 days after the first day of trading on May 18 before publishing their views, limiting the research on Facebook until now to a handful of analysts.
"One of the things investors will have to get comfortable with is Facebook's recent revenue growth deceleration," said Scott Devitt at lead underwriter Morgan Stanley, who issued an "overweight" rating.
Devitt, who told the firm's major clients that he had cut his revenue estimates on Facebook just days before the IPO, said he expects mobile monetization to be a challenge for the next several quarters to several years.
He expects revenue to climb 31 percent in 2012, down sharply from the 88 percent growth in 2011.
Of 14 analysts' ratings initiated overnight or early on Wednesday, seven slapped top ratings -- "buy," "outperform" or "overweight" -- on the social networking company, including lead advisors JP Morgan, Goldman Sachs and Morgan Stanley.
Six others, including Citi, gave Facebook a "neutral" or "hold" rating. And just one -- BMO Capital Markets -- began their coverage with an "underperform" recommendation and a $25 target, translating into a nearly 25 percent slide from current levels.
The eight-year-old company started by Mark Zuckerberg in his Harvard dorm-room began trading at $38 -- a whopping 100 times 2011 net income per share, compared with Apple Inc's current multiple of 20.6 and Google Inc's 18.9.
TOPSY TURVY IPO
Analysts at JP Morgan set a price target of $45 US for the stock, suggesting a rise of 36 percent compared with its close of $33.10 on Tuesday.
The company's stock offering, one of the most highly anticipated in history, was marred by a series of technical glitches at the Nasdaq exchange.
Facebook's decision to increase the size of the offering by 25 percent just days ahead of the IPO, as well as concerns about decelerating revenue, also weighed on the stock, which traded as low as $25.52 before regaining some ground to trade in a $31-$33 range in recent days.
Goldman Sachs set a share price target of $42, while RBC said it expected a run to $40. BofA Merrill Lynch and Morgan Stanley pegged the shares at $38, while Citi and Barclays opted for $35.
The rush of research comes ahead of Facebook's second-quarter results, expected sometime in mid to late July.
With about 900 million users, Facebook has become one of the Web's top destinations, challenging established players such as Google Inc. and Yahoo Inc.
Even so, revenue growth from ads and other services is slowing. The company, which last year was more than doubling the amount of money collected every quarter compared with a year earlier, reported growth of 45 percent in the first three months of 2012, and revenue declined from the preceding quarter.
General Motors' announcement a few days before the IPO that it would stop advertising on Facebook has added to the concerns about Facebook's ability to generate business from advertising.
Despite $4.8 billion in expected revenue in 2012, Facebook's user monetization rate is still relatively low, said BofA Merrill Lynch, which expects new advertising formats to accelerate revenue growth in the second half of the year.
In recent weeks, Facebook has unveiled a string of enhancements to its advertising service, allowing marketers to target ads to users on the mobile version of Facebook and to show Facebook users ads based on previous websites that they have visited.
"The company is in the midst of a mobile usage transition and we are cautious on Facebook's revenue trends until new mobile ad revenue models start driving the top line," the analysts at BofA Merrill Lynch wrote.
Several analysts working for the underwriters, including Morgan Stanley and Goldman Sachs, cut financial forecasts for Facebook days before the IPO after the company cautioned about revenue growth due to a rapid shift of users to mobile devices, where Facebook is less effective at generating revenue.
The analysts briefed some institutional clients about their revised forecasts, Reuters has reported, but retail investors were left in the dark. That revelation has resulted in lawsuits alleging the banks and Facebook failed to fully disclose the company's weakened financial outlook ahead of its IPO.