- Facebook short sellers are victims of their own clouded judgment and dogmatism.
- The IPO debacle has resulted in different standards and higher scrutiny in spite of exceptional leadership and performance.
- Facebook bears no similarity to the Internet bubble and it is trite to make the assertion.
- Mark Zuckerberg spends no time promoting Facebook stock and instead shapes the future of the Internet while the rest watch on.
There exists a temporary set of rules for Facebook, GUILTY - even when proven innocent. The burden of proof -to prove over and over and over again- rests upon Facebook, Inc (NASDAQ:FB).
After the IPO, the crowd of "perma-bears" seems to have decided on Facebook's story from beginning to end like someone who watches a mystery film and decides in advance how it is going to end, while they ignore the fact that the performance and growth trajectory of Facebook has been speaking for itself.
I am often a contrarian but never recommend making a decision for the sake of "contrarianism" alone. In the case of Facebook, the hyper-negativity and acrimony that permeates the comments below any positive article serves as an affirmation in my opinion. (See a June 6. 2014 article, 3 Reasons to Invest in Facebook, for typical responses).
An affirmation for Facebook longs is that the general consensus for the past 2 years has been that you shouldn't buy Facebook. Since the IPO debacle over two years ago, Facebook has been a contrarian investment.
Leading up to the IPO, there was indeed excitement, but post IPO Facebook has not at any point achieved "little darling" status in the same way as the 1990s bubble stocks to which it has been erroneously compared ad nauseam. When the stock rose to its high, it almost seemed to do so reluctantly. I have never seen a stock more popular to hate than this one, from day one. If you look at the totality of headlines over the past 2 years while FB shares climbed based upon delivering success, the headlines were a barrage of absurdities asserting "Facebook is the next MySpace" because "teens are leaving en masse..." absurdities permeated the Internet about Princeton University rocket scientists who supposedly predicted the future demise of FB based upon the behavior of bacteria and viruses... These types of headlines have been the prevailing headlines with respect to Facebook.
Another contrarian affirmation is the irrational enmity for Facebook's CEO. Unlike the leadership among the 1990s little darlings, Mark Zuckerberg seems to be a CEO who cares very little about promoting his company's stock. He actually makes statements after blowout quarters that downplay, if anything. This guy is like the Anti-Bezos (Bezos was long criticized for daily positive press releases accompanying his insider sales early on in Amazon.com history). There's no "conspicuous consumption" with Zuck. He goes on about his business as he wears his hoodie and does nothing flashy aside from some large charitable donations. Am I saying he's a pious saint? No. I think his fault may be that he wants to dominate. He wants to win and he wants to rule the Internet world. As he does this, the money follows as a concomitant.
Facebook may be more of a "reverse" bubble if anything, meaning it is artificially and temporarily being held down. The reality is that it is the shorts who are actually behaving in herd fashion. When one speaks of "Internet bubble", there was no greater example to embody that era than Yahoo (NASDAQ:YHOO) reaching a $200 billion market in the late 90s.
Almost 2 decades later, look at Yahoo's five year revenue trajectory as compared to Facebook's 5 year growth.
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Notice the Yahoo annual revenues declining over 5 years. Then look at the younger Facebook demonstrating explosive growth.
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I realize these companies are very different - but this is the comparison short-sellers insist upon making. However, they only do so in comparing the "behavior" of stock prices between the companies! This Facebook situation has never held any similarity whatsoever to a '90s YHOO or AOL and those companies have never to this day accomplished anything the likes of which Facebook has in a few short years. It is therefore unreasonable to make blanket statements comparing Facebook to companies with very little in common.
Facebook is actually up less than 50% per year from the IPO price of 2+ years ago. That is a nice move but nothing like that of the Internet bubble of the 1990s and is especially reasonable considering the excellent growth rates delivered. The shorts act as though the share price moved much more than it has because they use the all-time low as their basis. One can however argue that the investment bankers had the IPO price right and the sell-off was based more upon unfounded hysteria, thereby warranting a correction back to the IPO price.
With the critical mass that Facebook has already achieved, Mark Zuckerberg seems to be operating on a visionary level, shaping the future of Internet usage while his peers are operating in a status quo, reactionary manner. One example may be in his acquisition of the company known as Pryte. The acquisition seems trivial based upon the size of the company itself but the reasoning for its acquisition is interesting. As a Marketwatch article explained:
"Pryte is working with telecoms to allow regular users to purchase data to power individual apps, rather than for an entire device. The idea is to power only the apps that users want, allowing them to reduce costs…"
With well over 1 billion users, I have written here in the past that Facebook is becoming an Internet in and of itself. Zuckerberg demonstrated with his quick domination of mobile ad monetization, he understands that the future of the Internet is not the desktop. That is why the concept alluded to in the Pryte acquisition may be more significant than many realize. Zuckerberg is obviously positioning to be the go-to app for mobile with which users would be able to do much more than socialize. We know that Zuckerberg's goal is to keep you on Facebook as long as possible. It therefore stands to reason that Facebook wants to make it possible for users to do more and more right through its interface. So, imagine doing things like streaming Netflix (NASDAQ:NFLX) right there within your Facebook account. I've already written that Facebook should acquire Netflix as they both offer one another great opportunities (over 1 billion people for Netflix to target as paying subscribers and a lucrative means to monetize Facebook's 1.3 billion users aside from advertising).
There are naysayers who attach themselves to every successful company. Sometimes they are right. I was a naysayer and short-seller of both Yahoo and AOL in the late 1990s and made some of my greatest profits in those positions. However, unlike with those companies, Facebook is delivering the performance to boot and Zuckerberg appears to be leading while many companies are following or coasting along without much innovation.
The case of the Facebook short-sellers reminds me of the old adage to "never fall in love with a stock". The rationale behind it is that human judgment gets clouded by emotion. Investors sometimes become dogmatically attached to their theses and refuse to see it when the reality proves them wrong. Facebook short-sellers and Zuckerberg antagonists (sometimes one and the same) may be guilty of "falling in hatred with a stock".