Media

360-Degree Review: Are Facebook Shares Finally Bottoming Out? (FB, LNKD, MSFT, MS, NDAQ, ZNGA, YELP, SOCL, GSVC, SVVC, SINA)

Source: courtesy Facebook Inc.
Calling a bottom is generally speaking a sucker’s game and it can often feel a bit like trying to catch falling swords.  That is particularly the case when you have a highly passionate story around a stock and when so many investors have been burned.  This theory is even hard to believe on a personal level.  Still, money is money and the recent stock price action is trying to signal that perhaps some price stabilization is coming into play in shares of Facebook, Inc. (NASDAQ: FB).  Investors have seen shares drop more than 30% from the IPO price of $38.00 and that 30% Maginot Line would actually be $26.60.

Recent trading is showing some share price stabilization.  The lowest we have seen Facebook trade this last week is $25.52 on Wednesday and the lowest close was actually on Tuesday at $25.87.  With shares up 3% at $27.15 mid-morning on Friday the stock is now up over 6% from the lows.  That won’t do any good for the investors who are ‘long and wrong’ at $38.00 or higher, but this is where the amazing level comes into play: If Facebook manages to get above $27.72 it would actually be up for the entire week and it would mark a recovery of almost 9% from its post-IPO low.

Again, it is almost hard to even note that Facebook shares may have bottomed out.  It is the ticker tape and the fundamentals that matter the most here and our job in this case is to give investors both sides of the case…

Some analysts and reports have managed to be positive… S&P Capital IQ, which does not buy and sell shares for the public, actually upgraded Facebook in recent days to a less-cautious position.  Social media deals are actually continuing to come.  Even rival LinkedIn Corporation (NYSE: LNKD) recently saw its insiders sell millions of dollars worth of new shares and its stock has risen since.

This week came a comScore post titled “It’s Time to Change the Discussion on Measuring Facebook Effectiveness” and it was very much in favor of Facebook over the long haul for its ad and traffic metrics. The company has now also launched its App Store to garner more revenues.

Then there is the flip-side of the coin…  One analyst went so far as to say that Facebook would be dead in 5 years even though it is not actually a bankruptcy prediction.  Bernstein gave it an ‘underperform’ rating on June 4 and some analysts and market pundits have called for much lower prices versus even now. Even at the end of May there were reports that the IPO troubles may have negatively impacted its loyalty measurement.

Mary Meeker as “Queen of the Web” recently talked down all social media and Web 2.0 valuations.  Is a Facebook smartphone really a good idea?  We might change the name to Earbook if this comes out.  And, should it buy the Opera browser when it has Microsoft Corporation (NASDAQ: MSFT) as a shareholder with Bing access?

The stock exchange and underwriters messed up… Nasdaq OMX Group Inc. (NASDAQ: NDAQ) totally botched this IPO on the technology and order flooding side, and its remedy is just insulting.  Morgan Stanley (NYSE: MS) took heat over not offering support endlessly at the $38.00 IPO price, probably because it knew it was cheaper to let Joe Public lose billions in value rather than trying to support the shares losing billions of dollars for Morgan Stanley in the process.  The brokerage firm’s public defense was somewhat insulting.

Facebook & Zuckerberg are to blame too… There is a ton of blame here on Facebook itself as well for how poorly this IPO went off. CEO Mark Zuckerberg obviously demanded too high of a valuation at $100 billion.  He wore a hoodie to the roadshow after at first trying to signal that he might not even present live at the roadshow, he announced his wedding on the same weekend as the IPO, he went to Italy for a honeymoon, and he forced IPO underwriters to take a token fee for their underwriting efforts. We pointed out the negative revenue situation before the IPO and highlighted the top 18 risks that investors had to consider (and still have to consider).  All those insiders got to sell as many shares as they could at $38.00, over 30% higher than this week.

Facebook was the lynchpin of our 11 companies where shareholders have no power at all and are totally at the mercy of the CEO.

So, you have been given a 360-degree review for why Facebook shares might be in the bottoming-out process.  It is very hard to believe when you have seen this carnage.  After all, what if stocks this summer turn out to be like summer of 2011 or 2012?  They say “Sell in May and Go Away!” for a reason.  Some are still bullish and many are still very cautious or just outright negative for the long-haul.

Here are two charts to consider from the ErlangerChartRoom:

JON C. OGG

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