i wouldn't listen to Cramer. He does not have the average investor in mind when he makes statements like you said. He is a former hedge fund manager and there was a film on Youtube with him speaking about how he manipulated the market.
Once a manipulator always a manipulator and he will always try to talk the market up or down. He is still on air because he entertains people and helps the CNBC sell ads.
Right now FB is compelling to investors. That is actually what makes stocks move. If we were to base FB's capitalization based just on comparative value, FB should be a fair amount lower compared to GOOG than it is now. If we were to compare FB to AAPL, it would even be much lower than it is now.
However if we were to compare FB to Amazon, it would be much higher.
The problem with comparing stocks like FB to other stocks is that comparative value does not drive the stock. It is basically a story of growth that either the stock market agrees with or not. That is what drives a stock like FB. As far as growth as income growth is concerned, it is often hard for us to see inside the channels of a company to see what the growth is going to be like in the future. I think FB is doing well and will continue to do well and it looks like recently it is producing amazing growth.
It is tempting to compare companies but growth companies cant easily be compared.
If you look at FB starting Jan 1st, it was coiling hard (oscillating). FB went from 106 December 31st to a low of 89 on January 20th. It then went to 117.
This can be partially attributable to events but this was momentum which is often oscillatory in nature. Look at how many days these rises and falls lasted. Most news based rises and drops are only a couple of days.
These coils were pointing to a big breakout. After the earnings were announced the coils were broken (the triggers were hit and there was no breakout or capitulation.
Recently a couple of stocks failed to do much after a split. NFLX was 99.97 after a split July 15, 2015. it is now at 93.11. GOOGL was flat several months before and after the split.
We often attribute a psychological factor to splits and there maybe was one when companies like MSFT, ORCL, CSCO, and INTC were young. If the split was the reason for the rise in the stock price, the companies performed and grew into the value created by the split.
If we go back and look at GOOGL it had a pps after the split of 573 and it stayed in a range of mid 500 to low 600 for over 6 months. GOOGL is now 714 and I think the majority of the price is now based on how they perform and really have little to do with the split. I understand that a lot of people hold onto splits potentially doubling or tripling a stock but at least in the near future that is not happening.
You can expect FB to do well based on previous history and should be approximately a little bit behind the growth that it produces in earnings. That is not an exact curve but an approximate curve that FB has been following recently.
After the stock split is long gone, we know that FB will follow a curve based on its financial success. I think the split will have a minimal effect on FB.
It starts to get more complex there. I believe you basis should be the basis for your shares. I believe that your new shares will have to be held for more than a year to be long term as opposed to short term.
The IRS says that most stock dividends are not taxable.
This is from the IRS website:
Taxable stock dividends and stock rights. Distributions of stock dividends and stock rights are taxable to you if any of the following apply.
You or any other shareholder have the choice to receive cash or other property instead of stock or stock rights.
The distribution gives cash or other property to some shareholders and an increase in the percentage interest in the corporation's assets or earnings and profits to other shareholders.
The distribution is in convertible preferred stock and has the same result as in (2).
The distribution gives preferred stock to some common stock shareholders and common stock to other common stock shareholders.
The distribution is on preferred stock. (The distribution, however, is not taxable if it is an increase in the conversion ratio of convertible preferred stock made solely to take into account a stock dividend, stock split, or similar event that would otherwise result in reducing the conversion right.)
It looks like if the stock dividend includes cash or if it is giving out preferred stock, then it could be taxable, None of these apply so it should not have a tax consequence.
GOOG and GOOGL did nothing a couple months before and after their split. They are currently at around 700 and change. The split two years earlier was at 550. That is recent history. The rise in two years for Google was due to its performance not the split. The same goes for FB. They will do well based on their performance not the split.
I am going to study this more and since I dug into this I found the dual shares were a different than a normal split. The other thing is that this has only happened one time before so figuring out how the market was made could give someone a real advantage on the options.
I did not trade the split for GOOGL but at least for options it is kind of weird.
The reason that GOOGL is worth more than GOOG is not because the price is set but the market felt that voting shares are worth more than non-voting shares. Also the A shares and C shares price adjustment dates were staggered. GOOGL was adjusted April 3rd and GOOG was adjusted March 27th. This might be interesting because here is how the shares traded April 1,2, and 3. This is opening price and then closing price.
GOOG: 558.71 567.16, 599.99 567.00, 569.85 569.74
GOOGL 1120.27 1,134.89, 1141.90 1,135.10, 573.39 571.50
This brings up interesting trades. Also the options if exercised prior to the ex-dividend date would yield one share of Class A stock and 2 shares of Class C stock so the options will amalgamate to reach a price. The options are tied to all 3 shares. Lets say you have 110 strike call and as of the ex-dividend date lets just say the prices for FB are $42 for the class A and $39 for the 2 class C. If you exercised the call, you would buy all that stock for $110. It would have the value of $120 much the same as the other options. After the ex-dividend date, they will start new option contracts for the C shares and the A shares. Contracts on pre-split stock, This will be called a non-standard deliverable option. It looks like the the market makers are doing their best to kill any advantage to holding options into the split/dividend.
The share fluctuation is really compelling and it would be nice to trade it but because the shares are amalgamated it really kills any option advantage. Also the liquidity of the non-standard options may be hard to trade. The liquidity will go down because people will be interested in the new option contracts instead of the old non standard deliverable.
It will do weird things to extrinsic values of the optins. ITM options will have a physical and set value so whether they are non-standard or not will be interesting to see
You could exercise your call. There is a little bit of time premium (about $.60) in your option but its not much. If you sold your option and bought the stock, you would be a little bit ahead.
Not much is going to happen between now an expiry due to the splilt/dividend. The split/dividend wont happen for at least a month or two after June 20th and it could even be a longer time. The date has not been set yet. GOOGL stock split really didn't do too much for the stock before or after the split so FB probably will be the same. Now FB may go up for reasons other than the split. Just so you know, the split dividend will provide you with 3 times as many shares but the price after the split will be 1/3 of the pre-split price. Its a wash.
With that said, I don't think there is any advantage to exercising your options as opposed to selling your options.
i don't dislike you and I appreciate your posts. That comment of mine was not good because I have no idea of what you think.
Bareft, I know you don't want me to respond but you say things that I can't leave alone.
The market could not work if the stock was traded at twice the value from one instance to the other. This would happen if the stock had a value of 2/3. This is infinity because in a matter of one trade someone could double their money. People would keep bidding the market up. The market could not be made. Mathematical logic prevails. FB may not have to follow wiki rules but they have to follow the market rules. Neither Mark nor Facebook could set the price of a stock dividend or split. Mark can't make the market. Anything other than a perfect 1/3 for 3 times the shares would people getting something for nothing. I have participated in investments that involve both stock dividends and regular dividends. I am trying to stop all this confusion. I know you really don't like me so I am sorry for responding. You have to know when something disturbs the mathmatical equations and logical reasoning in my brain it hurts so I have to correct it to make the hurt go away. Anyway sorry I will stop there.
It will not be 2/3. That would make the transition discontinuous. The market could not account it. It will be 1/3 the price but you don't need to take my word for it. Here is a cut and past from Investopedia regarding stock dividends.
Stock dividend: If XYZ Corp. announces a 2:1 stock dividend instead of a cash dividend, the adjusted closing price calculation will change. A 2:1 stock dividend means that for every share an investor owns, he or she will receive two more shares. In this case, the adjusted closing price calculation will be $20*(1/(2+1)). This will give you a price of $6.67, rounded to the nearest penny.
The date is not announced yet. It will be voted on 6/20 and a date will be set after that.
You will have 500 shares of your original stock and 1000 shares of class C. The catch is that all the stock will be priced at 1/3 the price right before the split/dividend.
It is very simple. The date has not been set yet. It will be voted on (just a formality) 6/20 during the stock holder meeting. So date could be 1 month or maybe a year or more after the meeting but probably closer to one or two months after 6/20.
You will have 1000 of your original shares and 2000 C shares so a total of 3000 shares. The stock price will be 1/3 of what it was just prior to the split/dividend. As far as price it will be a wash. You start out with 1000xpps or 1/3 x 3000 xpps=1000pps where pps is the price per share before the split. If you look at GOOGL, the price a couple of months before the split and couple after were very close so split is likely to not do much.
I tend to think that FB will perform on its own merit as it has in the past and if it continues to do well the stock price will do well. Other than that, the split/dividend for FB is really a non-factor. 3 times the stock @ 1/3 the price will be the same as the original position before the split/diviidend.
Option expiry Friday. FB may gain some traction and pull itself up but right now the option mm seem to have it in their grasp at the moment.
The shares are going to be tripled and the price will 1/3. After the dividend the stock would be $50.00.
I think that FB will well but it will do it on its own volition. The split will be a non-factor.
Take a look at Google's split
Split 2 for 1
Todays price is $705.06
If you look at Google's split, the stock pps was pat two months before the split and 2 months after the split.
2 years after the split, GOOGL pps is nowhere near the price prior to the split.
This is a good example because this is showing the mechanics of recent split in close sector with a very high price. This is not to say that FB wont do well but FB will do what it does based on how it performs.
The split will not be positive or negative. It will actually be a non-factor. If FB manages to more than triple its earnings one could conservatively expect the price to triple.
A PE is calculated with GAAP numbers. The numbers that you are listing are non-GAAP. For the year 2015 the non-GAAP numbers are 2.28 but the actual GAAP numbers are 1.29. You can find this on FB 10K filling.
Yea I have played around dividends but a stock dividend and a split are functionally the same. Like a cash dividend it is adjusted but just with stock instead of cash. The stock price will not recover like a cash dividend because the dollar amount will be substantial.