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Facebook: Is the Pullback Nearing Completion?

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The following is a sample report of Sean's TechStrat Report that was written on February 5, 2013

In short, I think we are nearing a time where Facebook (FB) is likely to come into another accumulation phase. While many pointed out that the quarter "wasn't as good" as it could/should have been I think many are overlooking some rather larger to huge positives. In actuality, I think FB produced my "darn fine report" measuring stick very well.

Readers will remember that I was the early caller on the bullish side due to FB's efforts in mobile monetization. Well to put it simply FB went from 14% of total revenues in Mobile to 23%. That actually fits with my glide path to the eventual 40-50% level nearly to a tee. In fact, I had FB hitting 21-22% of rev's in Mobile this quarter so they actually beat my estimate by a full percent. Here again, the whisper number on this was 24-25% and in my view, this is a key reason why we saw the stock peel from the near term highs.

Also, unlike many others, I like to see FB spending copious amounts of money for any and all forms of innovations. I've lost count how many times that the naysayers have criticized Google (GOOG) for spending too much money and all they have done is built an unparalleled money making machine. The key to survivor-ship bias in Techland is R&D spending, innovation and investments. When companies quit doing this I get worried. When companies stay on this path or even accelerate it, I stay or get even more bullish. Amazon (AMZN) anyone? The point here is that FB spends money to grow intelligent data/platforms and then creates products from those. I do think they will monetize search and that will cost them a lot of money during this development phase.

Bottom line, I think this was a better report than many others have stated. I also like the fact that the stock is holding that $28.50 area I articulated post report, to where I thought the stock would work from a selloff level. I do think we will see the market become more volatile in the coming weeks, so I'll be looking for FB add/trades in the low/mid $28's on down days and a succession of down days would be even better.

Twitter: @UdallTechStrat

The TechStrat Report by Sean Udall. Sean provides in-depth analysis, strategies and trades across the technology sector. Take a FREE 14 day trial.
POSITION:  Position in FB, GOOG.