Buying Facebook shares now?
Facebook has already had a storied history in the investment world, barely one year old as a public company. A completely flawed IPO with many parties at fault, launching at $38 and within two months going to a low of $18. After being within a trading range in the mid-twenties for many months, with recent earnings it has now reached to the $35 level. Why would it be a "buy" now?
The message here is that the risk/reward on this, what is perceived as a speculative stock, is hugely in favor of the reward side. One or two more quarters of progress on the mobile and ad revenue areas of the business, meaning believably turning Facebook into a real business, and the stock will easily be $50. Over time the price could be much higher.
This is a stock that is not at a point where it can be analyzed on any traditional metrics. What they do with their customer reach is impossible to quantify. They have a strong management team that is still evolving and product innovators whose talents are at work. They obviously understand everything that the lightweight pundits throw at them, such as the need to keep their youth vibe going, the challenge to keep their immense global platform intact and expanding, and how to best target the middle aged and older segment that use Facebook in a way that also could be attractive to advertisers. Those are issues and no one could possibly imagine that they are not way ahead of the pundits on understanding this.
So with less than $2 billion of long term debt, more that $12 billion of shareholders equity, and revenue growth reliably in the double digits - 20%, 30%, higher? - there is room for this company to continue to experiment and learn how to be a public company that makes real money for shareholders.
Would FB be bought here after the significant run-up? Thinking about it? Being a big time skeptic on the IPO there was no move here and no interest. The real business model was not visible. Finally capitulating and buying at the low levels after the collapse, there is room here to buy more with a cushion. The business model may finally be coming into place. The institutional shareholder base is surprisingly not crowded if the recent 13-F's are still intact so there is room to grow, lots of doubters to convert. Retail choked on the IPO and is probably staying away, but could still come back.
Facebook still has significant challenges, many unknowns, of course. That's a real risk. The potential reward could be much greater.
The message here is that the risk/reward on this, what is perceived as a speculative stock, is hugely in favor of the reward side. One or two more quarters of progress on the mobile and ad revenue areas of the business, meaning believably turning Facebook into a real business, and the stock will easily be $50. Over time the price could be much higher.
This is a stock that is not at a point where it can be analyzed on any traditional metrics. What they do with their customer reach is impossible to quantify. They have a strong management team that is still evolving and product innovators whose talents are at work. They obviously understand everything that the lightweight pundits throw at them, such as the need to keep their youth vibe going, the challenge to keep their immense global platform intact and expanding, and how to best target the middle aged and older segment that use Facebook in a way that also could be attractive to advertisers. Those are issues and no one could possibly imagine that they are not way ahead of the pundits on understanding this.
So with less than $2 billion of long term debt, more that $12 billion of shareholders equity, and revenue growth reliably in the double digits - 20%, 30%, higher? - there is room for this company to continue to experiment and learn how to be a public company that makes real money for shareholders.
Would FB be bought here after the significant run-up? Thinking about it? Being a big time skeptic on the IPO there was no move here and no interest. The real business model was not visible. Finally capitulating and buying at the low levels after the collapse, there is room here to buy more with a cushion. The business model may finally be coming into place. The institutional shareholder base is surprisingly not crowded if the recent 13-F's are still intact so there is room to grow, lots of doubters to convert. Retail choked on the IPO and is probably staying away, but could still come back.
Facebook still has significant challenges, many unknowns, of course. That's a real risk. The potential reward could be much greater.
posted by John Borden at 2:30 PM
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