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Facebook Shares Cooling Off as Twitter Roadshow Begins?

Paul Ausick

When Facebook Inc. (FB) reports third-quarter earnings on Wednesday it is expected to post earnings per share (EPS) of $0.19 on revenues of $1.91 billion. The EPS estimate is equal to the company’s actual earnings in the second quarter and the revenue estimate is about $100 million above last quarter’s total revenues.

Year-over-year growth for Facebook in the second quarter was more than $600 million, and the revenue estimate for the third quarter of this year is $650 million above the third quarter of 2012. With Facebook’s shares near their all-time high maybe there is still some profit-taking. And for investors who want to maintain exposure to social media companies, maybe Twitter Inc.’s initial public offering (IPO) will pay off better in the near term.

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Facebook appears to be continuing on a growth track, so perhaps that is the reason that shares are trailing down from an all-time high near $55. Investors may not really be trying to evaluate the business case for the two companies, as much as they are the value of the shares in the two companies.

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Twitter’s announced IPO range is $17 to $20 a share. Many analysts consider that a bargain price. The Wall Street Journal notes that some pre-IPO mutual fund investors had marked their investments as high as $24.37 a share as of the end of September. If Twitter goes out at the high end of its range, that’s still a discount of nearly 22% to the mark-to-market price.

No one expects Facebook shares to jump 22% -- even if the company’s quarterly earnings report is a blockbuster -- by November 6th, Twitter’s tentative IPO date. But will Twitter’s shares really go out within the announced range? Even if the shares go out above the range -- perhaps especially if they do -- investors are looking to make a nice profit on those unlucky enough not to get in on the IPO pricing. Tune in next week to find out.

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Shares of Facebook are down about 2.7% in early afternoon trading Monday at $50.53 in a 52-week range of $18.87 to $54.83.

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