Facebook takes another pasting

Ah shame, poor Facebook, the stock got crushed last evening, falling to an all time low, if you count ten or so trading sessions as all time. Did you spot the picture of the Zuck on honeymoon eating McDonald's? His poor new wife is taking a beating in the Chinese press, not that I think they care. Perhaps not. Anyhow, they are in Rome (or perhaps were), spotted by the paparazzi, if the company achieves its objectives then their privacy settings on the web would be about the only thing that they could ever protect. But getting a sense of the guy, I think he knew that a long time ago. I "like" him, if not on his Facebook page, then at least as an innovator. Whilst GM might have pulled their advertising, other companies, including the small business kind might have made progress through targeting specific groups. I will still maintain that the known Facebook universe is far more valuable in the future WHEN they manage to monetise their audience in a bigger way. Not if, but when.

Why is the going so tough right now? The stock is down a whopping 25 percent since listing, which is pretty poor really. And heading in the direction of the bottom end of the range when they initially started with the road show, remember, 28 Dollars? 28 to 35 was the initial IPO range and then that changed because of the institutional demand to 34 to 38 Dollars. And the company hit the jackpot, because they managed to raise 180 million shares times 38 Dollars, or 6.84 billion Dollars. Which is currently 11 percent of the market cap in cash. Note that Google and Apple are more around 20 percent of the market cap in cash. There could be some kind of a clue there. The balance of the shares floated (421 million minus 180 million = 241 million) at 38 Dollars were early shareholders exiting. Perhaps they look a whole lot smarter now. But what caused the stock to fall last evening around ten percent?

For starters, real options trading in the stock started, if you are confused get some quick and very simple insight here -> Facebook shares fall to $28.84 on first day of options trading. The other two reasons are a rumour that Facebook are about to buy Opera, a web browser with Norwegian roots. And the Instagram deal is being scrutinized by the antitrust regulators, nothing fresh about that news. And then some lawsuits pending against the company amongst others in terms of the listing process. I expect those to actually go away. Boo hoo, the IPO did not go your way, you read the prospectus, you expected the stock to be hot, if it was, there would not have been a single law suit. The mean estimates for next year (only 12 estimates) suggest the company will make 71 cents (54 cents at the bottom end of the range, 92 cents at the top end of the range) which sticks them on an earnings multiple of 40 times. 53 at the bottom end of the range, 31 times earnings at the top end of the range.

Expensive? Maybe. Cheap? Possibly. More pain short term, well, there are more folks betting on that scenario than not, but remember that the shorts take their chances in the same way that the longs do too. The problem that Facebook investor has right now, is that there are many investment options, and Google and Apple are just two. Their forward valuations of these companies look a lot more attractive right now, both are trading closer to ten times earnings. The future as they say, is unknown. Let us watch it, I would side with the folks that think this is an opportunity.