It seems clear that keeping the stock market near current levels is in the interest of some pretty strong powers/players out there. Historically, retail investors are known as the "dumb money," buying high and selling low. However, for the most part, retail has steered clear of the market. Facebook's decline following its IPO is one significant symbol/reason why the retail investor does not trust the casino right now.
So, if you are one of the major powers/players and you want the retail tide of money to flow out of fixed income and into equities, what must happen? If you guessed, "Prevent FB shares from falling further and/or make them rise", you win! If the retail investors see Facebook shares climb back up in value then it won't look quite so bad for the Wall Street banks that took the FB IPO participants for such a ride.
"See, it wasn't theft, merely a temporary overreaction to the downside for what is truly a one-of-a-kind company with over a billion regular users." I know shorts will disagree, but the current $42 billion market cap on Facebook seems reasonable to me.
By comparison, Amazon, while a more mature company, has a $110B market cap (2.6 times FB), a trailing P/E of 297, and only $377M Net Income Avl to Common (ttm according to Yahoo statistics). Facebook is just getting rolling at monetizing their assets and is already producing billions in operating cash flow.
All I'm saying, shorts, is be careful if/when market sentiment changes towards Facebook. To me, the chances that the next gap is up seem to outweigh the chances for a gap down; even with the shorts incessant repetition of shares unlocking soon. You may wake up one morning to find the market has already priced in those shares unlocking and then some.
FB is not a long short argument right now as much as it is a question as to how they will perform.
FB and AMZN can't be compared....That is a value metric and FB is not a value stock and its multiples are far in excess of a stocks like COP and FCX which would be valued on a value metric. The bottom line is both FB and AMZN are valued on people's belief of the growth model of each company and how it presents this model.
I am not here to say that FB is going to do poorly in the near term. However, FB must do well on their earnings because there is nothing else to prop the stock.
The unlocking of the shares cannot be priced into the stock. The reason is that the unlocking is a dependent event and it immediately follows earnings. The combination of the unlocking and earnings will cause the market action. The market makers will not have a lot of control on the stock when the shares are unlocked. The shares are many times that of the institutional holdings so it really falls on how bad insiders need money at the time of unlocking and how they believe in the company's ability to appreciate pps.
If FB were able to blow the socks off the street, they would be able to hold up price if not they won't. Consensus is $.11 and $.12 would not be considered a beat. I cant tell you what is going to happen in the long run because you have to use your own conviction at this point in time. I also do not know what they will post at earnings. I do know that the stock will follow the earnings. That is your catalyst for pps.
I hope everyone can do well in their trades and we need to look at the general picture to see what it says. Your due diligence is to see how FB will earn.
You can make your decision after they report when you know what has happened.
Thanks for the cogent thoughts...here are a couple of counter points to play devil's advocate. As a data point, Yahoo Finance shows 80M shares short out of a 1.31B float when the stock is trading pretty close to previous lows.
top executives leaving, lets assume they all hold more than 1M shares each.
I agree, this is generally a bad thing in the short run. However, it seems kind of like the thing to do for these social-network companies. Also, if someone was just hanging onto their job for the IPO payout then it is probably best that they leave to open the position to someone with new energy that is still "hungry".
FB hasn't had one major inside buy yet.
The reality is that many of the holders make maybe 100K a year, but all of a sudden they had $1M in shares when this went public...Any smart person is going to sell at least 1/2 their shares and diversify their investment. Even 1/4 of total shares is still 350M shares, or 7 days worth of volume in a single clip.
Good point, but let's be honest. Even if future prospects are good, no smart employee with the majority of their wealth already in the company is going to buy more shares before they have a chance to sell what they already have.
The reality is, perhaps, that a portion of the 80M shares that are already shorted come from these employees you are talking about. If I were an engineer watching the price drop from $38 to $30 you can bet I would be leveraged to the hilt shorting as many shares as I had in options just to protect that position prior to their "unlocking". To the best of my knowledge, there is nothing preventing employees with "locked" options from shorting their own company and using their shares that are about to unlock to cover those shorts. That scenario is quite possible as these are not dumb people working there.
Also, we have to keep in mind that Zuckerberg promised not to sell any shares for at least one year. I believe he will keep to that word and I believe he is one of the major shareholders. :)
In the end, it's just really hard to value FB, but I'm pretty confident they are not a "fad". Besides teenagers gossiping, families legitimately use Facebook to stay in touch, high schools to organize reunions, companies and social causes to promote awareness, debate politics, etc. Like it or not, I believe Facebook is here to stay. I do like the idea of an e-commerce enabled Facebook where I can choose some items from a friend's wish list for their birthday. Niche companies looking to compete with Amazon may like that as well.
Maybe Facebook isn't like a chair, but more like a realtor. Homeowner's don't really want to pay the 6% commission to sell a house, but realtors pretty much control a key marketing platform (MLS).
It all boils down to Q3 earnings-report. Because of the secrecy of FB it is almost impossible to know what to expect. But looking from the data available these past 3 month, pretty much everything points to FB missing their estimates.
I mean, it is actually good that someone actually tries to back up their opinion on why someone should sit long. That is a lack here on these forums. That is also why we have discussions. So kudos to you by bringing some discussions to the table.
I have already posted an answer why I believe the stock will not only fall, but will literally tank within the next 30 days. FB hasn't had one major inside buy yet. 253 million shares, of todays 670 million float have left early investors/insiders hands. Now, those are not small numbers and should scare off anyone wanting to go long to go long.
$19.50 is a techincal support level which has been tested many times and clearly stands as some sort of support/resistance level depending from what side it is being tested. Today the stock fell below that line and is now testing $19.50 as a resistance level.
The only thing that can save this stock short-term is if Facebook delievers some astonishing Q3 results. Looking from all the measures the company has engaged into by trying to increase its revenues it is telling me that they really need to do whatever they can to boost their revenue. That seems more desperate than very well planned. Also, you cannot really say it is positive to have so many top executives leaving the company prior to Q3-report.
And countless attempts to prop up the stock through media, reports and talk. There is a reason for the saying; Talk is cheap.
You're right on! For the heck of it (especially w/ this crazy stock), I hedge my positions often. I grabbed some really inexpensive FB calls for the just in case scenario. That scenario is Z thinking whenever he gets in front of a camera and says nothing about hardly nothing, that FB goes wild! Or, the other scenario is that u have another and another like the MFoos try and pump the heck out of it.
Heres the question. With the top executives leaving, lets assume they all hold more than 1M shares each. When they are no longer employed by the company does their lock up period end? Or do they still have to tough it out until the lock up period for their investment class ends?
I also read somewhere that Zuckerberg was trying to just give employees more shares as compensation instead of cash... just creating more float, and more mayhem after the lock up.
Firstly, Facebook has been in "business" for 8 years. It is not like the company is completely new just because it went IPO 4 months ago.
Second of all, how can the unlocking be priced in when no shares are lock-up yet?
Third, wouldn't you find it a little bit uneasy sitting long when 9 top executives have left the company within the last 4 months. Majority of them just recently.
Fourth, the company isn't guiding ANYTHING before Q3 earnings, which isn't quite normal for a big company to do. It is quite common to announce how the company expects the earnings to be. Here, nada, nothing!
Fifth, company itself has peaked in pretty much everything. The usage, according to alexa ranking, has dropped almost 2,5% last 3 months.
Sixth, read the information from previous Q-reports to find information regarding Facebooks difficulty to monetize from their users/devopers etc.
Seventh, there are so many things fundamentally wrong at FB that it just doesn't make any sense that this stock will jump up. So much secrecy regarding this stock it is almost unbelievable.
I could probably continue, but I'll stop here.
Great Post. Well put. I agree w/ everything u say. The execs taking off should be very troublesome to anyone invested in FB-- the lastest just a few days ago. Can u think of a company that had so many execs leave after the IPO? I cannot off the top of my head, but it would be some interesting reading. GL.
The insiders who currently hold the 1.3 billion shares are allowed to BUY. Right now. They've been allowed to buy. There's nothing stopping those insiders holding the 1.3 billion shares from adding more any time they want including right now.
When the 1.3 billion shares are unlocked, THE HOLDERS OF THOSE 1.3 BILLION HAVE THE OPTION TO EITHER HOLD OR SELL. Which means unless all 1.3 billion shares are held, the supply side will be flooded and the price will go down.
There is absolutely nothing bullish about the 1.3 billion shares being unlocked. It gives the holders of those 1.3 billion shares the option to hold or sell. They've always had the option to buy. So it means the price will either stay the same at best (doubtful), or collapse towards ~$8.00 or less (likely).
Sentiment: Strong Sell
Good point Dexo,
The reality is that many of the holders make maybe 100K a year, but all of a sudden they had $1M in shares when this went public. fast forward to today and they are now worth 500K or less. People are looking at their investment going up in smoke. Any smart person is going to sell at least 1/2 their shares and diversify their investment. Even 1/4 of total shares is still 350M shares, or 7 days worth of volume in a single clip. No question this is going to drop hard.
youre thoughts here are full of holes.
1. FB hasnt turned a profit yet.
2. FB is a fad
3. There are over 8,000 public companies, FB is one of those. Why not push up XOM, APPL, BAC, or any of those to suck in investors?
4. Lock up period ends in literally 1 month, a combined 1.5 B (yes B for billion) shares will become available to sell. That is when the cascade happens.