Sterne Agee analyst Arvind Bhatia said “We think Instagram ads could ultimately command a premium to Facebook ads, although that will likely take a while,” Facebook (Nasdaq:FB) is approaching the tipping point of credibility. They have to show enormous sustainable growth and cash flow to justify a valuation north of $50.
The Sterne Agee comment is typical of Wall Street psycho-babble. OK Instagram will show some growth. But if it is a premium to Facebook, the value proposition should be clear immediately if not sooner. When you buy groceries Filet Mignon is more expensive than stewing beef. There are no arguments.
Arvind Bhatia, (if the quote from Investors Business Daily is believable) in a back-handed way is denigrating Facebook main offering. So what should the Sterne Agee clients do with Facebook?
George Gutowski writes from a caveat emptor perspective. Follow him on Twitter @financialskepti