Facebook (NASDAQ:FB) tripped and fell as much as 6 percent in early afternoon trading Tuesday after getting slapped with a downgrade from financial services firm Raymond James. The firm, citing the company’s now enormous valuation, pulled the stock down from Strong Buy to Buy but raised its price target from $39 to $56 per share.
The downgrade appears as if it was a long time coming. Facebook stock soared following a second-quarter earnings report that smashed expectations and pretty much drove every last bear out of the stock, but the subsequent euphoria perhaps drove valuation a little too high. Facebook revenue increased 53.1 percent on the year to $1.8 billion, beating the average analyst estimate of $1.62 billion. Adjusted earnings increased 58.3 percent on the year to 19 cents per share, beating the average analyst estimate of 14 cents per share.
Perhaps most importantly, Facebook reported that mobile advertising revenue accounted for approximately 41 percent of total advertising revenue for the quarter, up from 30 percent in the previous quarter. This news certainly justifies investor optimism, but the company has a trailing 12 month price-to-earnings of 215 — a little pricey.
Facebook’s slide on Tuesday led a broad selloff on the Nasdaq index. Other major tech companies like Pandora Media (NYSE:P), Amazon.com Inc. (NASDAQ:AMZN), and LinkedIn Corp. (NYSE:LNKD) all experienced fairly deep declines as the market soured. The ongoing partial shutdown of the U.S. government and the tedious debt ceiling debate appears to have contributed to overall selling pressure, and the Dow Jones Industrials and S&P 500 also sweat value on Tuesday afternoon.
But with earnings season on the horizon and the markets operating under the assumption that the U.S. will not default on its debt obligations, major market moves are still being dictated by company-specific news. Pandora’s steep decline — down about 7 percent — followed news that Apple (NASDAQ:AAPL) would expand its iTunes Radio service to the U.K. and Canada. People familiar with the situation told Bloomberg that the service could launch in those countries in early 2014, beating Pandora to those markets.