Is it time to make money shorting Facebook (FB)?
The current action shows a stock poised to go higher. The shares were at $27.24 but holders of options seem to think they can hit $30 before they expire at the end of the week. The company reports earnings tomorrow after the market closes.
Current earnings estimates are for 13 cents per share, about $310 million, which would be less than last quarter's $509 million but represent some form of stability. Revenues are expected to be about $1.439 billion, notes Brian Gilmartin's earnings preview, representing a 36% increase over the $1.058 billion scored in the same quarter a year ago.
The company has had to put out some brushfires, caused by a Guardian story its source, SocialBakers, has been refuting, to the effect it was losing users. The original story continues to trend on Stocktwits.
Still, the pattern on tech earnings this quarter has been negative, regardless of the number. Amazon.Com (AMZN) seemed to have a solid beat but promptly crashed. When they want to take it down, they find an excuse.
In the case of Facebook, that could come in mobile, where it just launched a new "skin" for Android called Facebook Home. Arvind Bhatia of Sterne Agee is thinking that number could come in at $360 million, but notes anything short of $380 million might be seen as a disappointment.
The problem for Facebook is not that it may be losing users, but that it may be plateauing. If it has exhausted its market, as The Guardian implies, then the only way to grow is by gaining more revenue from each user. But in most cases like this, only 20% of users drive 80% of the revenue, more or less, which can make this very difficult.
My own concern is more basic, the PE ratio that now approaches 2,000. It's a number that demands earnings, and even if the company were to maintain a 13 cent/quarter pace for the rest of the year that would still leave it with 52 cents, a PE of about 55.
Is Facebook's growth worth a forward PE of 55? I don't think so, but feel free to disagree.