Enterprise Facebook - Rats Deserting the Ship?
Jaan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Facebook (NASDAQ: FB) is not faring well. As recent articles in Barron’s and Bloomberg lay out, the newly public company is selling for less than half its IPO price of $38 per share, and everybody seems to be jumping ship.
[Graphic by the talented Katrin Orav]
The analysts are downgrading like crazy as advertisers, the main source of revenue for the social media wizard, are questioning Facebook’s ability to deliver. In spite of the fact that they have almost 1 billion members, apparently they come to chat and not to click ads. (Surprise???)
I said in my previous post:
The problem for Facebook, as I see it, is that we have a conflicting set of desires here. While advertisers desire well targeted ads for their dollars, the end users want privacy.
This problem is not going away, and it seems to be affecting the price FB can charge.
Let’s look at some Yahoo! Finance numbers with Google (NASDAQ: GOOG) and Apple (NASDAQ: AAPL) thrown in for comparison:
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Facebook is at glorified altitudes here with a ttm P/E of 61+ while Apple and Google are around 16 and 20 respectively. The forward P/E's for next year are similarly imbalanced.
The PEG Ratio for Facebook is at 1.36. remember, this is for expected growth rates. Precisely what some analysts are questioning now. Here Google’s (1.02) is at a neutral level, while Apple's 0.68 indicates that it is severely underpriced.
It just makes one wonder what people were thinking when they took FB public at that price, and what people were thinking when they bought in! I think it had a lot to do with the problem I pointed out with RIMM.
The pattern I see again and again over the years, is that a stock flashes high, over-extends, then burns and crashes, dropping into a totally oversold state. But FB really does have fundamentals, just not fundamentals to support the current level (especially in this conservative market). In my opinion it will not gain until it has some historical revenue growth behind it. And this will take a while.
I seems to me that FB will be a social outcast for a while. But be careful. At some point it will itself be oversold, and when the market is tired of beating it up, like a beaten down bread dough, it will rise again. With almost 1 billion users - and a revenue flow, though modest, it is not going away anytime soon.
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Malcolm Manness has a Masters degree in Computer Science, and has worked for 14 years in development, technical publications and software quality assurance. He has been investing for 20 years. Currently, he does writing, and FileMaker Pro programming on contract.
His short fiction can be found (under pseudonym J. Seunnasepp) at http://50CentFlash.com/.
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