This week I had a few conversations with Forbes on Facebook. It started out with the question: “Is the stock at $29 a clear buy?” The answer is like always highly dependend on the investment objectives and horizon of an investor. But here were some of my thoughts. Please also read the Forbes article on this topic .
Facebook’s IPO was a success – for Facebook. Not so much for the individual investor. The stock closed at a little over $38 dollars on its first day. Now, it’s trading in the $29 range trending lower. Has it dropped enough? Is it a good time to buy now? After all, this company has 900 million users worldwide. The upside seems enormous.
There are three major issues with the stock that investors have to take into account. While Facebook has a huge global audience its appeal to advertisers is limited so far. People use the site but are not clicking on the ads. Then, its mobile monetization is unclear. That’s a big gap because we increasingly access the web via mobile platforms. Last but not least there is the lock-up expiration issue. There a lot of folks on the sell side with strike prices well below the current $29 mark. If they decide to buy that house, that boat or that car right away instead of holding on to stock, then this could create additional price pressure.
Another question was, what to look for at the earnings call. Please read the article on Forbes. Here are my thoughts.
Numbers: Are they able to hit the analyst earnings expectations of $0.12 per share and $1.15 B in revenue. In order to afford the multiples they are commanding right now, the company should achieve or exceed their numbers. Why is this important? It shows the ability to tactically execute. Hitting their numbers helps to build trust into deal making machinery that needs to take the business to unprecedented levels quarter after quarter.
Mobile Strategy: The world is going mobile. Traffic from mobile devices is growing at an astounding rate — by some estimates, mobile visits now account for fully 20 percent of Web traffic. Cisco estimates that global mobile data traffic will increase 18 times over between 2011 and 2016. Compared with all that growth, mobile ad spending is still small, and even though it’s projected to more than double in 2012 to $11.6 billion, according to Strategy Analytics, advertisers will still spend nearly four times as much on online advertising. Yet, someone will figure out how make money on mobile. The question is, is Facebook one of them? Looking at their next earning calls it would be refreshing to understand how they plan to become a major player in the mobile world. Besides selling mobile ads what other plausible monetization strategies do exist?
Making sense of the acquisition puzzle: Facebook has been very active during the past months acquiring different companies in different areas. Among those were Instagram, a photo sharing app, and Face.com, a face recognition company. What is the grand plan behind those transactions. Most importantly: how do they help to grow the top-line?