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10 Expert Takes on Facebook Stock at $19, Half the IPO Price

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Is now the time to bite? These investing professionals are not convinced.

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How Much More Will Mobile Cost? And When Will Zuckerberg Hand Over Control?
by Peter Prudden

Since the IPO that led to a near term top in the market, Facebook has done nothing but grind lower. Over-hyped and under-delivered is how you could classify this market event, but we told you to stay away because the broader market was unstable and due for a rinse. Couple with that a deal price that was elevated from $28 on the top end to $38, and a larger insider sale added on at the eleventh hour. The insider gate has once again been lifted and we are seeing many early investors take the money and run. As they should. The cost basis of the angel crowd and their subsequent return warrants cashing in the bet and moving on to the next opportunity. What should the retail and institutional crowd do? Tough question. My gut says ignore it because uncovering value is an evolving cycle and value will always come to the surface. If Facebook was a true superstar, it would have traded like LinkedIn (LNKD) out of the gate, and not Groupon (GRPN) or Zynga (ZNGA). The key question you must answer from a longer term investment thesis is: How much will Facebook need to spend on mobile Web/ad development? It's eating up the company's earnings and there's no end in sight. Another question: When will Zuckerberg give up the reins? He can't manage the business to the Street's standards and likely never will. From a shorter term trading standpoint, you can be long against the recent low, as hot money will come back in with a close above $20.

Peter Prudden is the General Partner of SISU Advisors LP and the Managing Member of Prudden & Company LLC. Read more of his comentary, here.


Fighting With Reality: No One Would Ever Pay to Use Facebook
by Michael Sedacca

Facebook is and has been at the forefront of creating new social media initiatives. However, it's becoming clearer that Facebook went public at or near its peak in terms of growth. Yes, Facebook is still growing, but not at the exorbitant rates that the stock was implying.
It's a widely known fact that almost all of the restricted stock that will become available will be dumped on the market. The float will grow from its initial size of 470 million shares by almost 2 billion shares, which will be a growth of nearly six times. Will there be enough buyers to absorb all of the new supply? My inclination is no, but the amount of new supply that's still coming has already been discounted by the market.
One thing that has struck me in my recent conversations is that Facebook would likely not be able to survive on a pay-per-use model. Those I have asked have nearly universally said that even if they had to pay $1 to use Facebook, they would not. This underscores Facebook's fight to stay relevant, where LinkedIn has thrived off a pay-per-use model.
Given the expected increase in Facebook's tradable float to 2.4 billion shares, I could see a bottom for Facebook's stock in the high single digits, but that is just an opinion, not a market call.

Michael Sedacca edits Minyanville's Buzz & Banter. Read his recent stories, here.


Facebook Could Go Under $10 or Back to $38
by Michael Comeau

Facebook is still filed under "What's the Point?" in my mental filing cabinet.

Here's the thing: If in fact Facebook is on the verge of becoming an Apple- or Google-like growth story, then I can afford to wait until the metrics start turning. If Facebook is the next big thing, then that implies a multi-year success story giving investors plenty of opportunities to jump on board.

But until then, I don't see any point in jumping in a stock that looks like it could crumble under $10 (yes, I said under $10) on a lousy quarter. Facebook is trading at 30 times next year's consensus earnings estimate.

Should Facebook disappoint once again, there's no reason that multiple can't go to 20 or 15 or even less. And in that scenario, that multiple would be placed on lower earnings estimates, resulting in Double-Costanza time (simultaneous shrinkage of multiple and estimates) at a level we haven't seen since Netflix's (NFLX) 2011 flop.

On the same token, should Facebook's new advertising initiatives start to take off, particularly in mobile, the stock is likely to rapidly climb back towards its $38 IPO price (yes, I said $38).

Fortune may favor the bold, but since my stomach can't handle the bumpy ride, I'm happy to watch Facebook from the sidelines. It's just too hard!

Michael Comeau edits Minyanville's Buzz & Banter, and is also a regular columnist on Minyanville.com, focusing on technology and consumer stocks. Read his recent articles, here.
No positions in stocks mentioned.

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