Facebook Stock: May 2012

by | May 21, 2012 | Asset Management, Stock Market Comments

Please do not get hung up on the PRICE of Facebook stock.
Focus on the VALUE of Facebook, as a company.

Facebook stock was priced at $38 on the New York Stock Exchange. There were several folks in the the market who anticipated this to be a hot offering.

But wait: at $38/share, the value of the company is $104 billion.
Which makes the value of Facebook stock bigger than Hewlett Packard and Starbucks, COMBINED.

To expect Facebook to trade to (what some suggested) $60 or $70/share in the near term, would mean the VALUE of the company would double, from $104 billion to $200 billion.
I do not understand how or why that would happen.
But things happen all the time that are unexplainable.

Facebook and the underwriters grabbed the maximum value at the time of the IPO, and left very little (if any) on the table for new stockholders. That’s not a terrible thing, the underwriters did what they thought was right. It does not appear there is any wiggle room for a short term “pop” in the price of the stock.

The way to look at Facebook stock is not as a young, fast-growing new company stock. In my opinion, Facebook appears to be priced at full value NOW.

Which means we need to move on, and must start asking fundamental questions, including:
– How fast is it growing internally?
– What are the revenues like?
– What are the future prospects for the company?

On the negative side:
It appears difficult to really promote Facebook as a “growth stock” because it is priced at full value, already has 900 million people using Facebook, they stated in their road show that they may have “issues” monetizing mobile subscribers, in short the stock is “priced to perfection.” This implies if anything goes wrong, the stock may have some trouble.

On the positive side:
As a data mining company, no other organization (to my knowledge) has been able to wrangle so much data from individuals. From a marketing perspective, that is an extremely powerful asset. Additionally, if they can figure out a revenue based business model based on advertising, it has tremendous potential.

There are very few people who can predict what Facebook will be worth in the future. Will it be Pets.com or MySpace?

Or will it become a marketing and ad-selling juggernaut?
Don’t know.

When Google went public in 2004, it was priced around $85. The shares opened that day around $100, and closed that day around $100.
No one really knew what to expect. Google seemed really expensive.
A year later the stock was $280. That’s a good investment.

In the late 1980’s, Shearson Lehman went public at $36 and should have been a great deal.
Just a few short years later, it was re-acquired in full by American Express. In the single digits. Not a good investment.

Sometimes “great deals” do not work out.

FACEBOOK: A few more (random) points
There are NO exchange-traded funds which own Facebook at the time this article is written (May 20, 2012).
But at some point within the next 30-60-90 days several exchange traded funds — and mutual funds — will (probably) need to own the shares, as Facebook will soon be classified as:
– A large cap company,
– A growth company,
– A technology company,
– A social media company,
– An internet company, etc.
So there will be a steady line of buyers in the future.

The Initial Offering priced Facebook at 26 times SALES (an absolutely huge multiple)
Revenue growth is poised to slow for the third straight year.

In case you were wondering:
Apple currently trades around 13 times earnings
Google currently trades around 18 times earnings
At $38/share, Facebook is valued around 100 times EARNINGS
I do not own shares of Facebook.
I do have a Facebook page.
I have recently closed the Facebook page for Mullooly Asset, as the compliance requirements of my industry make Facebook pages a logistical nightmare. In my industry, we are not permitted to flaunt testimonials or endorsements. So (it has been argued) when someone “likes” a comment or post on Facebook, that “like” can technically be considered a testimonial or endorsement. Ridiculous, but those are the rules. And as a marketing tool, I have yet to figure out how to grow an investment advisory business using Facebook as a marketing tool.

This is ** NOT ** a solicitation to BUY or SELL shares in ANY of the names mentioned in this article. Also, none of the names mentioned have been specific recommendations of Mullooly Asset Management. Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment or investment strategy will be profitable or equal to past performance levels. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions, or withdrawals may materially alter the performance of your portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for an investor’s portfolio.


If you are relying on a blog post for specific investment advice, you are making a huge mistake. Please speak with an investment adviser before making ANY investment decisions.
If you do not have an investment adviser, we encourage you to contact Mullooly Asset Management at 732-223-9000, or through our website. Under no circumstances should the content discussed here to be considered specific investment advice.

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