The technorati took me to task. So did Wall Street.
"Out of touch," one of the critics said. A "luddite" charged another.
"Doesn't grasp the significance of so many users," one Wall Street insider opined–who happened not coincidentally to work for one of Facebook's investment bankers.
Since then the social media darling has fallen another 31% to nearly $22 a share. Ten weeks later, Team Hoodie hasn't done much to merit an upgrade either.
Sorry guys…Facebook is still only worth $7.50 a share – likely less.
The Cold, Hard Facts for Facebook
But there were a host of other factors as well.
I cited falling revenues, a lack of control over the mobile market channel, increasing distrust from customers who were voting with their feet and the concurrent departure of major advertisers like GM which will cost Facebook an estimated $10 million a year in revenue alone.
I also posited the assumption that Facebook would be unable to maintain the 100% plus growth that many investors believed was baked into the proverbial cake.
Google couldn't. Apple couldn't. And both of them are real businesses.
That's the key…real businesses.
Fact is, Facebook still hasn't figured out what it wants to be when it grows up.
Despite the fact that CEO Mark Zuckerberg does have some excellent advisors, the company isn't going to be able to hide the fact that its "business" is nothing more than a colossal time-wasting collection of personal interest items for much longer.
Other problems abound, too. All of them point to a lower share price.
For instance, Team Hoodie seems more intent on creating new applications than they do on making money from customers. There seems to be a disconnect between what's cool and what actually makes money.
Take the recently unveiled tablet-based Facebook application for example.
Sure, it gets Facebook on a mobile device but there's no plan I can discern for how the application creates a different experience nor how it will generate money from all those eyeballs.
Then there's the Facebook phone. First it's happening, then it's not. This suggests that Team Hoodie may have serious internal strategy battles and be fraying around the edges.
Facebook's "Fiscal Cliff"
Call me crazy, but I think Facebook's numbers reflect this already.
One quarter into its public life, Facebook's net income dropped by $295 million to a loss of $157 million.
The cost of customer acquisition is going up so that's clearly digging into its bottom line.
So is the way the company chose to account for stock-based pay in adjusted earnings. Had management not chosen to exclude stock-based pay, the loss may have been orders of magnitude worse.
And finally, Facebook has its own fiscal cliff of sorts.
The 91-day lock up period imposed on employees and company insiders following Facebook's IPO expires later this month. That means another 268 million shares could come up for sale further depressing the value of the 2.1 million shares already outstanding.
With the stock now off $16 from its $38 IPO price there's definitely an incentive to sell. A large number of employees are probably anxious to get out before the markets destroy their windfall gains. I know I would be.
As the chart below shows, former employees have already hit the dislike button and sold.
Figure 1: Source: SecondMarket, Inc.
Call me a skeptic but I find it especially convenient and more than a little coincidental that 79% of the total Facebook-related market volume comes from former employees and 86% of the total Facebook-related transactions come from the same group.
Investors are the next biggest group of sellers by total dollar volume accounting for 12.4% of the total and 4.8% of the number of sellers. Perhaps they haven't given up the ghost yet.
Either way, the chart is kind of scary when you consider the exponential growth associated with Facebook stock sales because the old adage certainly applies. What goes up, must come down.
Don't get Zuckered again. The clever folks are the ones who already sold.
Related Articles and News:
- Money Morning:
Facebook Stock is Worth $7.50 a Share at Best
- Money Morning:
Fuzzy Math, Greater Fools and the Facebook IPO
- Money Morning:
Five Ways to Avoid the Next Facebook IPO Fiasco
- Money Morning:
Is Facebook (Nasdaq: FB) a Replay of the AOL/Time Warner Deal?
About the Author
Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs The Geiger Index, a reliable, emotion-free guide to making big money and avoiding losses, and Strike Force, which aims to get in, target gains, and get out clean. In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.