A Foolish Call on Facebook
Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
On Friday shares of Facebook (NASDAQ: FB) closed higher by a foolish 6.59% thanks to a number of key developments. The primary catalyst was its new e-commerce feature, an integrated service with Dropbox and its new “gift giving” service. Also contributing, was data regarding growth in China, with 63.5 million users, which is impressive considering the fact that FB isn’t even supposed to be operating in China. Then, there was a recent report that highlighted the data surrounding the growth of mobile, which is perhaps the most significant concern surrounding this company. And furthermore, there’s the CNBC interview on Monday with Sheryl Sandberg, which has been advertised on almost every commercial break on CNBC for the last two days.
A Foolish Call
Like many investors, I’ve stayed somewhat balanced regarding my outlook on the future of Facebook. On one side I think it has the tools present to become the next Google (NASDAQ: GOOG), but on the other it looks like the second coming of Myspace. I think in reality, it's somewhere in the middle. The stock recently took a beating after a Barron's article crushed its long-term outlook with a $15 price target, and comparisons to Google and Apple. But, Facebook is neither company, Google is a diversified technology company with a presence in everything from web search to driverless cars. But because of Facebook's platform some compare it to GOOG, and to be fair it does have the appearance of an early stage Google, but it's a much better comparison with other social media companies, such as Linkedin. Therefore, in some ways it's an undeserving compliment to compare FB with GOOG, as Google is about 11x larger in terms of revenue and is what Facebook eventually wishes to become.
If you compare Facebook to other social media stocks, one-by-one, you’d realize that although expensive, FB is the most attractive of the bunch. However, when making this argument in a previous article a reader didn’t neglect to remind me that, “being the best looking waitress at Denny’s does not make you attractive” which is a fact that all investors should remember when considering the dangerous but promising social media space.
So despite the fact that I am staying neutral regarding FB I do think it is becoming more attractive (as a waitress). I like the fact that Mark Zuckerberg recently said the new mobile ads have been more effective than traditional desktop PC ads, and I also like the benefits that a larger iPhone 5 could provide in terms of advertising space. I like the idea of having a “gift giving” service and that it’s creating a presence in China, regardless if it’s allowed or not. However, I don’t like the fact that this is a near $50 billion company that returns the majority of its revenue from advertising on a social media platform.
I think it’s safe to say that I need more answers. And with Sandberg speaking about challenges and opportunities on Monday with CNBC, I think we might finally get a clear picture and the answers to the questions we seek. Sandberg is a true professional in the market, she is not some 26 year old college dropout billionaire that created a website in a college dorm room, oh wait that’s the CEO. She’s a proven successful leader that will be able to communicate a clear vision. As a result, I am bullish FB short-term because I think investors will buy the stock into Monday’s interview and then even more following the interview. I think the company finally has figured out that by speaking in public and answering questions that its stock will rise, hence Zuckerberg Tech Crunch interview, and that just maybe they are figuring out the IR aspect to being a public company.
In regards to a long-term outlook or vision for the company, I honestly don’t know. I, like many, am still forming an opinion. I do think it’s the cheapest in its space, and that because of its platform the company has the greatest opportunity for growth compared to any other company in social media. Therefore, it is the cheapest and the most promising. Now, the only thing left to figure out is if it’s the best of the best or the best of the ugly. Hopefully, we learn more on Monday, regardless I think it trades higher on the comments and anticipation of Sheryl Sandberg.
To read more about Facebook including my analysis of the Barron’s piece click here.
BrianNichols has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook and Google and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Facebook and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.