BMO Capital Markets Initiated Coverage of Facebook with Underperform Rating, $25 PT

In a report published earlier today, BMO Capital Markets initiated coverage of Facebook, Inc.

with an Underperform rating and a $25.00 price target. BMO Capital went on to say “Facebook is the new foundation of earned media (i.e., ‘word of mouth'); however, checks with agencies over the past six months – including at last week's Cannes Lions Festival – continue to show mixed opinions on Facebook's paid media (i.e., advertising). With user growth decelerating (we estimate 22% in 2013 and 16% in 2014), pricing power will be required to support valuation, and we believe this will be a challenge in light of industry-wide declines. Facebook's social signals are a powerful countermeasure admittedly, and we do model double-digit eCPM growth through 2014. We would become more positive with the launch of rich media or online video ads, but these have not yet materialized, likely in the name of not disrupting the user experience. We believe risk around mobile monetization is well understood, and not a Facebook-specific issue.” Facebook, Inc. closed yesterday at $33.10.