Facebook: They Need Another Revenue Source, Says Capstone

Update: Facebook shares regained some ground late in the session, rising from their lowest point of the day at $31.11 to close down $1.12, or 3.4%, at $31.91.

Shares of Facebook (FB) are down 98 cents, or 3%, at $32.05 this morning, accelerating their decline from the pre-market session.

No doubt not helping the shares this morning is a glum note put out last night by Capstone Investments‘s Rory Maher, who starts the stock with a Hold rating, writing that Facebook is a “good company,” but that the shares are fairly valued, and that it needs to find another thing to make money off of besides just display ads.

“FB shares’ current 24X 2013 E EV/Ebitda multiple assumes significant growth from news businesses when the Company hasn’t yet optimized its core display business,” writes Maher.

“In particular, indications the past year that the Company’s premium ad products are not performing as well as advertisers would like lead us to believe that until this issue is fixed a premium multiple is not warranted.”

While Facebok has perhaps 5% to 10% of display ad spending, according to agencies, CMOs, and SEM observers that Maher has spoken with, the firm has failed to deliver the “ROI” information that advertisers want for premium ad products, he writes.

As a consequence, “We believe an increasing number of advertisers are spending budgets on less expensive self-serve inventory that otherwise would have been spent on premium inventory, putting pressure on CPMs and revenue growth.”

Such self-serve inventory is getting a life from companies such as Spruce Media and AdParlor, Maher believes, who are helping advertisers “get better results from their campaigns using Facebook’s self-serve API.”

Maher concludes Facebook needs to find another large revenue source beyond display ads, noting that Google‘s (GOOG) search business, combined with display, achieves perhaps $30 per monthly unique visitor, versus just $7 for Yahoo! (YHOO) and Facebook’s display efforts.

Maher is modeling $5.12 billion in revenue this year and 18 cents profit per share. That compares to the Street consensus of $4.99 billion and 20 cents.