UPDATE: Citigroup Initiates Facebook at Neutral on Great Potential, Multiple Challenges Ahead

In a report published Wednesday, Citigroup analyst Mark May initiated coverage on Facebook FB with a Neutral rating and $27.00 price target.

In the report, Citigroup noted, “We view Facebook as having great potential considering its large and global audience, valuable user data, and mobile presence. However, given the 1) continued monetization headwinds presented by the consumption transition from desktop to mobile; 2) challenges of maintaining rapid user/usage growth in the face of competition; 3) uncertainty surrounding potentially large opportunities like video, ad network and search; 4) expected near-term margin pressure created by the onset of an investment cycle; and 5) valuation (6x EV/CY14 revenue), we believe the shares could continue to underperform during this transitional phase of the company's lifecycle and, as such, are initiating coverage with a Neutral rating. Our 12-month target of $27 implies forward EV/EBITDA and adj. P/E multiples of 13x and 37x, resp., and is based on 3-year revenue and adj. EBITDA CAGRs of 23% of 26%, respectively.”

Facebook closed on Tuesday at $25.48.