Why the sudden slip in Facebook (Nasdaq: FB) stock?
Shares of the social networking leader slipped some 5% intraday Friday to $56.50. That followed a 5.15% drop on Thursday. The recent slump has nearly wiped out all of 2014's gains and leaves shares close to FB's Jan 2 opening price of $54.83.
While FB shares are still up a modest 5% year to date, they sit roughly 20% off the highs hit less than a month ago.
Fueling gains early this year was a string of acquisitions, some good and some questionable.
During a bold multi-billion-dollar shopping spree, FB spent close to $22 billion over a two-month period on a trio of businesses.
First was the Feb. 20 purchase of mobile messaging company WhatsApp for $19 billion. Next came the $60 million deal to by satellite drone maker Titan Aerospace on March 4. Then on March 25, FB ponied up $2 billion to buy Oculus, a virtual hardware company.
All fall under Chief Executive Officer Mark Zuckerberg's mission of "connecting everyone in the world" and "building the knowledge economy." In short, they are whopping wagers on the future of social networking.
The purchases have been called everything from noble to strategic to gutsy. Yet all come with virtually no revenue and no profits. So, investors are left mulling the prospects of the businesses and what they bring to Facebook stock.
Right now, they don't bring much but hype.
While Facebook still has plenty of cash on the books, shares are looking expensive (yet notably less costly than two months ago). FB shares presently trade at a hefty price/earnings ratio (P/E) of 86.
And therein lies the reason for the recent sell-off.
As The Wall Street Journal wrote today, there has been a notable shift to undervalued stocks due to investor expectations that the U.S. economy is showing signs of life and thoughts that faster-growing companies like Facebook are too pricey.
That's different from 2013, when return on "growth" stocks easily surpassed cheap stocks based on earnings prospects. In the second half of last year, growth stocks gained 18%, compared to 13% for value stocks.
But things will be different in 2014, and that means changes in where investor money is moving…