Remarkably, the hysteria that surrounded the company, leading to what was clearly an inflated IPO valuation, has had a severe negative effect on the company's reputation. In particular, it has created a rash of bitter investors hurt by their own greed and now seeking revenge.
Unfortunately for these investors, not only will their thirst for revenge fail, but they are going to discover that betting on the company's failure at this point will only produce more agony; as I've noted recently, though the stock has been in somewhat of a free-fall since going public, it has already reached its bottom at a price of $25.52. While calling a bottom may be a tad premature, evidence suggests that is in fact what has occurred. The stock has risen as high as 8% since touching its all-time low.
As hard as that may be for this group of haters to accept, it seems that Wall Street has also started to embrace the idea. According to Mark Harding of JMP Securities, upon initiating coverage of the company with a market outperform rating, he says that the next target will be $37 -- or $1 short of its IPO price. Even then, there are readers who want to insist that the stock should still be rated a sell because it belongs in the single digits... except they are unable to articulate why.
I will concede that Facebook was significantly overvalued at $38. It had no business being compared to Apple (AAPL)
The argument has always been that for all of the 900 million people that are using the service, the company had yet to figure out a way to get these users to open up their wallets even though it knows how much money is in these wallets and where the users like to spend.
While that argument may still hold true to some degree today, the risk dynamic in buying Facebook at its current level has drastically changed, in particular because the uncertainty that once surrounded the IPO is now over.
Can the company ever figure out a way to effectively monetize its 900 million users, of which over 400 million are considered "active members"? I think it can because it has the law of large numbers on its side.
These bitter bears dealing with a case of sour grapes have to now realize that they need to distinguish between Facebook, the new public issue vs. a startup company with an "if you build it they will come" model. They are not the same. Though legitimately there are questions about the value of social media, I think it is foolish to discount the company's goldmine of demographic information -- that in and of itself is worth a considerable amount of money to companies who are in desperate need of targeted marketing to grow their businesses.
However, according to some readers (presumably from the same investor base that thought it was a great buy at $38), the argument is that the stock is now heading to $15, while some have even suggested $6. How ridiculous and absurd can an extreme be from one end to the other? Again, when coming up with these thoughtless claims, the popular reason is that there will be a new company that emerges and render Facebook irrelevant or simply, the company does not deserve its valuation by Apple and Google standards.
Well, it seems Facebook has now grown tired of that argument and has recently launched an app center as it seeks to not only compete with both Apple and Google head-on, but more importantly it wants to dispel notions of its inability to profit from its user base while also addressing mobile ad revenue. However, these same bears are quick to point out that these are merely "acts of desperation." Eessentially the company is destined to fail no matter what it does.
What has become clear to me is that when it comes to Facebook, there is now a "no in-between" policy; either you like it or you hate it. It seems simple enough, right?
Except it isn't. The company is one that is without peer and this reason alone has been enough to offend a lot of people. From an investment perspective, one must not ignore that 900 million people is 900 million people -- that is almost 15% of the world's population. It is only a matter of time before it figures things out.
The stock was a considerable risk at $38, but not so much now. Unless one considers that it is going to $0.00 what exactly is the risk at current levels? Is there much of a difference between buying now and waiting possibly for a lower price, under $20 perhaps?
But to answer that question, one has to be willing to say with great certainty that the stock will be below current levels two-to-four years from now. Those quick to say that is the case, to them I say, get over your bitterness.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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