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Facebook, Facebook, and More Facebook


Where will the social media stock go next?

Right after I found this picture graphic showing research ratings on Facebook (FB), See It Market's Ross Heart and myself were having a friendly Twitter rant (@heartcapital and @alex__salomon) and I wanted to expand on it a bit. Basically, we were agreeing and ranting that while most traditional research firms spend a considerable amount of time and resources covering stocks with ratings and research, it remains a mystery that most Wall Street research works off a "target a higher price" approach; this is in contrast to Warren Buffett, who founded most of his immense fortune with a "buy super duper low" philosophy.

There is nothing new about this thought, but it had been a long time since I last conceptualized it. Now, let's go back to the picture graphic about Facebook coverage by traditional firms.

My first rant comes from seeing that only one out of 38 analysts currently has a "sell" rating on the stock. The statistics don't make sense: Facebook has performed way too poorly not to wake up some sell signals.

My second rant comes from seeing firms with "buy" ratings and much higher price targets completely avoiding the Buffett style investment!

My third rant comes from the lack of forthcoming subsequent notes and coverage either going haywire on the stock (sell, sell, sell!) or going Buffett on it (praise the markets for dumping this gem and be thankful to scoop shares at much lower prices).

And my last, final rant on this topic: Most traditional research firms work in a system where they cannot lose... yet most of the customers blindly follow their recommendations and cannot seem to be able to win.

Early Trading Days of Other Techs

I had some fun using Yahoo Finance interactive charts. By going back many years and looking at the early trading days of several companies, I was able to see how Facebook was stacking up.

I am just going to share a few companies, but this was fun! (All numbers are adjusted to pre-splits.)

So, Facebook went from $40 to $20… what's in its future?

Intel (INTC) seems to have gone from $45 to $34, back to $48, down to $39, and hit $125 in 1987. Then it was stuck under $125 four years later in 1991. Conclusion? Facebook could do the same thing.

Amazon (AMZN) started at $17, spent some jail time around $14-$15, and jumped to $25-$30. Conclusion? If the Facebook IPO had not been botched, it could have been a repeat (Todd Harrison recently tweeted that if Facebook priced at $19, it would likely be trading at $38 now).

Microsoft (MSFT) was stuck between $9 and $11 for its first seven months of trading (with large and volatile 10-20% swings from bottoms to tops), then finally took off and never looked back. Conclusion? Facebook needs to get its game going!

Google (GOOG), of course, was stuck from $100 to $120 for three short months, and then exploded. Conclusion? Facebook has lost the first inning by a blow-out!

Netflix (NFLX) in 2002 provided some rollercoasters of its own: Starting at $8, plunging quickly to $6.40, jumping to $9 and down to $2.50 in the first five months, only to slowly climb back up and shoot higher. Conclusion? Netflix gives hope to Facebookers!

Critical Questions for Facebook

Will Facebook ever launch a corporate version of its software, for CRM management, video conferencing, company-wide chat rooms, or data hosting? Maybe Facecorp?

Will Facebook ever offer the possibility to watch shared live events, concerts, movies, and games, to share across continents and timezones? Facefun?

Will Facebook ever reconquer the Twitter space and live value-added content? Facetter?

Will Facebook ever manage to monetize private picture and introduce new social advertising, tailored to your friends, their pictures, and videos? Facestore?

Will Facebook ever conquer the new, uncharted world of social and emotional advertising and create a "credit-card model" for ads, where the initial CPC is minimal and the charge is based on a percentage of success? Facebay?

I don't know, but they have 10 billion reasons to try -- and eventually, probably, 1.5 billion to 2 billion customers to try it with.

Let's revisit it in 2018!

Twitter: @Alex_Salomon

This article was originally published on See It Market.
No positions in stocks mentioned.
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