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Facebook Stock Won't be Saved by this "Useless" Idea

By , Contributing Writer, Money Morning -

Facebook Inc. (Nasdaq: FB) announced today (Thursday) it had finally amassed its one billionth member.

While the company celebrated the landmark number, many analysts simply shrugged it off. So did Facebook stock, which was down about 0.4% by 2 p.m.

As MarketWatch pointed out, "it's great to have one-seventh of the world's population in your network, but Facebook will have to translate that to the bottom line to sustain its upward momentum of late."

Or, as Money Morning wrote a few weeks back, "Congrats on one billion Facebook users... who buy nothing."

Facebook, in order to change that flaw, released a new plan this week to make money off its enormous subscriber base.

But here's why Zuckerberg and team should go back to the drawing board.

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Why Facebook Stock Has Much Farther to Fall

By , Contributing Writer, Money Morning -

After Facebook Inc. (Nasdaq: FB) CEO Mark Zuckerberg addressed the public earlier this month to stem concerns over the stock's steep and steady fall, Facebook shares enjoyed a mild rally.

That was fun for investors while it lasted.

Facebook stock Monday renewed its descent, dropping 11% before stabilizing a bit to finish the day down 8.3% at $20.79.

Monday's intraday decline was the steepest since July 27. It was so sharp it tripped Nasdaq's circuit breakers meant to shield investors from short-seller manipulation.

Sparking this week's selloff was a fresh report from Barron's that said the company is overvalued. Renewed concerns over how quickly the social-networking behemoth can capitalize on revenue from the exploding number of users who access the site via mobile devices and tablets contributed to the drop.

Tuesday morning, the selling continued.

Before the recent selling spree, shares of the Menlo Park, CA-based company had given back some 45% since its hugely hyped initial public offering on May 18.

But that decline isn't enough.

Barron's gave Facebook a best-case scenario of $15 per share.

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While Facebook Struggles, These Rivals Steal Market Share

By , Contributing Writer, Money Morning -

As Facebook (Nasdaq: FB) continues to struggle with growth and mobile strategies, its rivals keep moving forward in both areas.

GREE, Japan's $4.7 billion online media behemoth and rival to Facebook and its gaming counterpart Zynga Inc. (Nasdaq: ZNGA), moved further into Facebook's territory Monday with the purchase of social gaming company App Ant Studios.

GREE already enjoys a prominent position in social media. It's quickly gaining on other social networks, namely Facebook, since the bulk of its users already access the site via mobile devices - an arena in which Facebook lags.

With a strong focus on selling virtual goods, and with a variety of other superior services and mobile games, GREE is vying for sustained growth by expanding beyond its home turf -and is succeeding.

"GREE strives to build the world's leading global mobile gaming ecosystem. The acquisition of App Ant Studio will help GREE reach its goal of having 1 billion users worldwide as it expands its robust portfolio of games on GREE Platform," a company statement read. GREE gushes the new Platform will deliver exclusive social gaming experiences, in addition to offering developers access to a rising and engaged worldwide audience.

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Facebook Stock Gains, But Rival Threatens Market Share

By , Contributing Writer, Money Morning -

Look out, Facebook: LinkedIn Corp. (NYSE: LNKD) is inching into your territory.

As Facebook stock (Nasdaq: FB) keeps climbing from its all-time low last week of $17.55 a share, business-oriented networking site LinkedIn has introduced some new features that resemble those of Facebook.

LinkedIn last week rolled out a new notification system and launched an update for its iPhone, iPad and Android apps. The updates now inform a member when someone likes or comments on one of their status updates - just like Facebook, the social networking leader.

In the past LinkedIn only sent notifications if someone sent a member a message or extended an invitation to become a connection.

In a statement, the company gushed, "You'll never miss a comment or update to an engaging discussion about a news article or trending topic on LinkedIn."

LinkedIn's head of mobile products Joff Redfern said in an interview that the update will also let a member peruse company pages and job postings on smartphones and tablets. According to Redfern, users requested the feature so they could covertly browse for jobs while at work.

The latest moves highlight how LinkedIn is morphing from a headhunting and career-networking site into something bigger. Facebook big.

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If Only Zuckerberg Chose a Catchier Facebook Ticker Symbol

By , Associate Editor, Money Morning • @DavidGZeiler -

If only CEO Mark Zuckerberg had used a bit more imagination when cooking up the Facebook Inc. (Nasdaq: FB) ticker symbol, its stock might have fared a little better.

Sound crazy? Maybe, but several studies have shown that clever, pronounceable stock symbols - think Yum! Brands Inc. (NYSE: YUM) and Southwest Airlines (NYSE: LUV) - do better in the market.

The phenomenon is particularly true for IPOs, with the "fun name halo" extending about 10 days out from the stock's first day of trading.

Companies that choose a ticker symbol that doesn't form a pronounceable word - yes, like Facebook (Nasdaq: FB) -- often struggle. Generally speaking, the more jumbled the letters, the worse a stock does.

"[Our] research shows that people take mental shortcuts, even when it comes to their investments, when it would seem they would want to be most rational," Professor Daniel Oppenheimer, who co-authored a 2006 Princeton University study of the subject, told Psych Central.

While the academics who have studied this have not conclusively nailed down the cause, most suspect it has to do with something called "fluency," or how easily a person can process information.

People are simply drawn more to a catchy ticker symbol like YUM than a drab one like FB.

"It is possible that [people] are initially more attracted to fluently named stocks, that they pay particular attention to those stocks, or even that they favor those stocks because they have developed an association between easily processed names and success," Adam Alter, Oppenheimer's research partner, told The Wall Street Journal.

The Science Behind Clever Tickers

Naturally, not every stock with a clever ticker symbol outperforms and not every stock with a subpar ticker symbol underperforms. But the broad data show a surprisingly strong relationship between a ticker and how well the stock does.

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Analysts Weigh in on Facebook Stock as Quiet Period Ends

By , Contributing Writer, Money Morning -

Investors who want more analyst opinion on the Facebook stock price now have a lot more reading to do.

Today (Wednesday) marked the end of a 40-day quiet period for dozens of analysts who work for the 33 underwriters of the Facebook (Nasdaq: FB) initial public offering. That means these analysts now have released their first opinions and outlooks for shares of the social networking behemoth.

In an effort not to artificially inflate the stock price of a "hot" IPO, major Wall Street firms are prohibited for the first 40 days following a stock's debut from issuing analyst reports on stocks they underwrite. Smaller banks that are part of such an offering usually follow suit.

The universal opinion prior to Wednesday's Facebook releases was that the majority of analysts would "like" FB shares, and predict a 20% rally or more could be expected over the next 12-month period.

That was mainly the case among its lead underwriters, although some were bearish, bringing the average price target down. Price targets for analysts who provided them Wednesday ranged from $25 to $45, with the average $37.71.

But investors should consider the source before acting on the first analyst opinion they see. Some may be more interested in getting attention than guiding investors in the right direction.


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Why Facebook Stock Could Get a Boost from New Ad Strategy

By , Contributing Writer, Money Morning -

Facebook (Nasdaq: FB) continues hunting for a major development that'll lure investors back to its stock.

In order to do that, it has to show it can appease both users and advertisers. The world's largest social network, which has amassed some 900 million users worldwide, earned $3.15 billion from advertising in 2011.

But the Menlo Park, CA-based company has to attract more advertisers to its site since they've become disenchanted with Facebook's lagging mobile ad strategy.

Worries that Facebook's ad revenue growth is not moving in tandem with its explosive membership have weighed on the stock. Since going public on May 18 at $38 a share, Facebook stock has slumped 26%.

Recently, the company debuted mobile ads and other services to buoy sales, but investors remain skeptical that the efforts will successfully boost revenue.

"Facebook's been having challenges coming up with effective advertising. The company is hoping to use that inventory on the right side of the page to deliver advertising that is more targeted," Debra Aho Williamson, an analyst at eMarketer Inc., told Bloomberg News.

That's why the company is introducing Facebook Exchange.

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Facebook Stock Price Hits Low – Can this New Strategy Help?

By , Contributing Writer, Money Morning -

After hitting a new low of $25.75 on Tuesday, Facebook (Nasdaq: FB) stock slid further Wednesday morning despite a nice rally for U.S. equities.

With the Dow up nearly 90 points right after the opening bell, Facebook shares edged down to $25.68 in early morning trading, reaching another new low. Shares now sit more than 30% below the IPO price of $38.

Weighing on Facebook Wednesday was news that the Nasdaq Omx Group (NDAQ) will tell brokers exactly how it will recompense investors for the myriad trading problems during the Facebook IPO frenzy. Problems at Nasdaq contributed to order issues that prompted several class action law suits.

But what drew more attention from investors was a comment by Ironfire Capital founder Eric Jackson. The analyst appeared on CNBC's "Squawk on the Street" program Monday and said that Facebook will lose its dominance as a social network in less than 10 years.

Jackson highlighted Facebook's inability to make leeway in the thriving and prominent mobile arena, as well as the stock's steady tumble since the company's epic IPO.

The comments have triggered suspicions that Facebook will suffer the same fate as MySpace, once the dominant force in the social networking circle, and Yahoo (Nasdaq: YHOO), once a leader in Internet search.

"In five to eight years they are going to disappear in the way that Yahoo has disappeared," Jackson said. "Yahoo is still making money, it's still profitable, still has 13,000 employees working for it, but it's 10% of the value that it was at the height of 2000. For all intents and purposes, it's disappeared."

Now Facebook has a new strategy to increase its reach - and its profits - but it's one that will likely raise some eyebrows.

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Facebook Stock Options: Bears Come out to Play

By , Money Morning -

It's been an interesting ride so far since the Facebook stock options left the starting gate Tuesday.

Expected to hit the 400,000 contract mark on their first trading day, the options closed with a total volume of 369,478 contracts, according to The Options Clearing Corp (OCC). Only Apple Inc.'s (Nasdaq: AAPL) options had more trading volume than Facebook on Tuesday.

Unfortunately, the underlying Facebook (Nasdaq: FB) stock price wasn't as charming as it dropped under $29 a share for the first time Thursday. That's more than 23% below its IPO price of $38 on May 18.

The options market has highlighted investors' lack of faith in the Facebook stock price.

Put options, usually recognized as a bearish bet, give a holder the right to sell shares at a specific price by a certain date. Call options, on the other hand, are usually considered a bullish bet and give the holder the right to buy shares at a specific price.

In its first three days of trading, put volume has continued to outdo call volume. It appears that everyone is down on this stock.

Until Facebook stock stops falling, most investors remain too wary to buy.

"Short-term we are still cautious but there should be reasons for optimism later this year and next," Pivotal Research analyst Brian Wiesner told Reuters.

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Five Ways to Avoid the Next Facebook IPO Fiasco

By , Chief Investment Strategist, Money Map Report • @kfgtotalwealth -

On the heels of the Facebook IPO fiasco, many investors are wondering how they can find the next best thing and avoid getting "facebooked" in the process.

Tall order? Not really.

First, look for companies with ideas that can be applied across a wide variety of industries.

If I had said this five years ago, you'd be looking for Internet- related startups or companies that can do "it" better, faster or cheaper.

Going forward however, I think the true innovation will be exponential progress that's made linking living systems with their digital counterparts. Everything from synthetic biology to computational bioinformatics will grow a lot more rapidly than the broader markets.

So will key markets related to healing human illness, solving hunger and figuring out how to deliver potable water to broad swathes of the planet.

No doubt there will be tremendous ethical challenges along the way, but I believe we will see the line blur between what's needed to live and how we actually live our lives.

Though it's hard to imagine given the state of the world at the moment, I believe a fair number of the best up- and- coming investments will be outside the traditional first- tier markets of the United States, Europe and Japan.

In fact, I'd bet on it.

Second, don't confuse the ability to organize or share information with the ability to generate revenue

One might lead to the other but they are not the same thing.

The way I see it, Facebook is a classic example of everything you don't want in a business. It is 900 million users who spend an average of $1.32 a year. Compare that to Amazon.com, which clocks in at a much more valuable and consistent $36.52 per person.

Call me crazy, but I don't think Facebook stock will see the bottom for a while. As I wrote last Friday, at best Facebook is worth $7.50 a share.

Revenue is slowing. Facebook doesn't dominate the mobile markets that are becoming the preferred consumer channel for tens of millions of people. And, in what is perhaps the death knell, startups are already cannibalizing Facebook's user base.

The ability to "like" somebody is really no different than signing their yearbook in high school --only you're using a computer and the Internet to do it.

Third, hunt for fringe thinkers working in their garages.

It's not enough to think differently. The next big things will come from those thinkers operating on the fringes of what the rest of us consider normal.

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Facebook Stock is Worth $7.50 a Share at Best

By , Chief Investment Strategist, Money Map Report • @kfgtotalwealth -

Duh on you if you bought the Facebook IPO.


Double duh if you're thinking of buying Facebook stock now that it's fallen to $32 a share and lost $17.16 billion off its initial $104 billion valuation.

The company is only worth about $7.50 a share. And, no. That's not a typo. There is no missing zero or a placeholder.

That's reality. What is ludicrous is that Morgan Stanley and Facebook executives thought the company merited a $104 billion valuation at 100 times earnings.

As my good friend Barry Ritholtz pointed out recently, both Apple (Nasdaq: AAPL) and Google (Nasdaq: GOOG) debuted at about 15 times earnings. Today they trade at 13.6 and 18.2 times earnings and 3.75 and 4.9 times sales respectively.

As I type, Facebook's market cap is $86.84 billion and its price to sales is ridiculously high at 21.01. I think that's way out of line.

So what should the numbers be?

Try this on for size. If we use Google's price to sales ratio of 4.9 (and I am being generous here for discussion purposes), that equals a total market cap of $20.24 billion or 76.68% lower than where it's trading today.

With 2.74 billion shares outstanding, that's equal to only $7.39-$7.50 per share.

No doubt I'll get the evil eye from the Facebook faithful and Morgan Stanley for saying this, but think about it.

Revenue is already slowing and the company does not and cannot possibly dominate the mobile markets that are becoming the preferred channel for millions of people.

Worse, startups are already cannibalizing Facebook's user base as concerns over privacy and who likes who mount.

Companies like General Motors (NYSE: GM) are deciding not to renew their advertising. This is going to hit Facebook to the tune of $10 million a year for the loss of GM alone.

More will undoubtedly head out the door for the same reason, since Facebook friends don't necessarily translate into revenue.

Corporate buyers are beginning to figure out that advertising on Facebook is simply not cost effective versus other media alternatives - gasp - including good old fashioned television and radio advertising, billboards and tradeshows.

Facebook Stock: At the Mercy of the Merely Curious

Many people think this isn't a big deal. They couldn't be more wrong.

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Is Facebook (Nasdaq: FB) a Replay of the AOL/Time Warner Deal?

By , Global Investing Specialist, Money Morning -

I hope you didn't buy shares of Facebook (Nasdaq: FB). The valuation was always too aggressive.

And increasing both the price and amount of Facebook stock at the last moment ensured that both underwriters and retail investors ended up with far more shares than they bargained for.

In fact, the Facebook fiasco reminds me of another deal that marked the peak of the dot-com boom.

No, not the ineffable and rather sweet Pets.com- their IPO was far too small a deal to have genuine market significance.

Instead I'm talking about the AOL and Time Warner merger announced on January 10, 2000.

Like Facebook, the deal was sold as a big success. It was only later that it quickly became clear that AOL had sold itself at the absolute peak of the market.

From there on out it was all downhill as the storied merger practically top-ticked the market.

Before Facebook There Was AOL

AOL had built up a nice business from "dial-up" Internet access, but it was already obvious by January 2000 that the arrival of broadband Internet would make for a difficult transition.

As such, AOL's market capitalization of around $200 billion was purely the result of the frothy market of 1999.

Nevertheless, that rich valuation enabled AOL to become the senior partner in an acquisition of the Time Warner media conglomerate, getting 55% of the merged company in a deal valued at $350 billion. It was the largest merger in U.S. history.

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Facebook Stock Price Drama Heats up with Lawsuit (Nasdaq: FB)

By , Contributing Writer, Money Morning -

Investors are not taking lightly the lackluster performance of the Facebook stock price (Nasdaq: FB).

On Tuesday the finger pointing blame game began, followed today (Wednesday) by lawsuits.

Investors who claim they were misled in the purchase of the social network firm's stock filed a lawsuit against underwriters Morgan Stanley (NYSE: MS), Goldman Sachs (NYSE:GS), JPMorgan (NYSE: JPM) and the other underwriters, some 33 in total.

According to a complaint filed Wednesday in Manhattan federal court, the investors, who are members of a proposed class action lawsuit, claim they have lost more than $2.5 billion since Facebook's debut last week.

Morgan Stanley has been accused of mismanaging the offering by either signing off on a price that was too high, or agreeing to sell too many shares.

Facebook went public May 18 amid much hype and fanfare at $38 a share, the high end of the increased price range.

Several investors are frustrated that they got more shares than they were expecting in the IPO. They in turn dumped those shares when Facebook began trading Friday, pressuring the stock's price down and taxing the Nasdaq's overburdened platform. This resulted in a myriad of problems including late execution reports, communication problems, and delayed quotes.

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Facebook Stock Price: Time to Play the Blame Game

By , Contributing Writer, Money Morning -

It's the third trading day for Facebook stock, and the finger pointing over what went wrong has begun. Facebook (Nasdaq: FB), its underwriters, and the Nasdaq are all red-faced after the lackluster debut of the largest-ever tech offering. The hyped-up Facebook IPO was finally priced at $38 last Thursday, raising $16 billion. Shares opened Friday […]

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The Time to Buy Facebook Stock

By , Money Morning -

Facebook stock got off to a rocky start Friday, with Nasdaq messing up order confirms and Morgan Stanley propping up the share price. Now on day two, the stock price has slumped more than 10% already in morning trading. Money Morning Capital Waves Strategist Shah Gilani joined Fox Business' "Varney & Co." program to discuss […]

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