As if the scrutiny Facebook (FB) received leading up to and immediately following their IPO in May wasn't enough, the social media giant is back under Wall Street's microscope ahead of their first quarterly earnings report as a public company due out after the market close today. What does a win look like for Mark Zuckerberg & Co.? According to Zachary Karabell of RiverTwice Research it may have less to do with EPS and revenue and more to do with their user base.
"You look at how much they're monetizing their billion plus Facebook users," he says, "and to what degree they are or not will determine the fate of that particular company."
Karabell contends that regardless of their highly anticipated second-quarter earnings Facebook's impressive number of users will keep the company successful. "If Facebook had just stayed the private company they were," Karabell argues, "we would still be talking about the Facebook effect, we'd be talking about Facebook as it's changing interactivity and communication, and we probably should have stuck with that because that's more important."
Still, he admits, the company itself has problems. As an investment Karabell says it's "not a stock I would be so engaged in." More specifically he says that he is short some Facebook puts and believes the stock is range bound somewhere between the low $20's and high $30's.
As for Zynga (ZNGA), Karabell didn't like it before the latest earnings disaster calling it just a "tiny derivative" of Facebook and a stock with little reason to buy. But he admits Facebook and Zynga do have time to turn things around.
Unlike the Nokia (NOK) and Rim (RIMM), he says "these names do have a floor until there's evidence that the businesses are collapsing…They have a few years. I mean even Groupon (GRPN) has had a few years when it clearly has a much more challenged business model."
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- Zachary Karabell