In an article published on June 9th entitled Trading Game Plan for 5 Market Movers, I made a suggestion for the sake of FB shareholders and directed it to Facebook's (FB) management team. I called it free consulting for billionaires when I said, "I believe what would stop the bleeding for Facebook would be a nicely timed action and press release to spur excitement about the opportunity again." Well, it would seem that Mark Zuckerberg took my advice.
My article was published on June 9th, which was a Saturday. From the close of trading on Friday June 8th up to the close of June 22nd, Facebook shares have climbed 22%. Guess what the catalyst was: Facebook stopped being the news and instead got back to making it, just like I said they should.
Facebook's shares took off just after it announced it was beta testing a new real-time bidding advertising system dubbed Facebook Exchange. Suddenly the investment community remembered why it was so interested in Facebook to begin with.
The magic about Facebook is centered around its user base, which is like a hungry distribution channel just waiting to be served more food. Smart investors know that if Facebook could better leverage its 845 million users then its valuation might be justified, or dare I say, even understated. Imagine, with every new idea the company delivers, even if it only adds an incremental dollar to profits per user, it magically transforms that idea into $845 million. I mean that is just beautiful. It's the reason every Internet scheme attracts capital, from Google (NASDAQ: GOOG), to LinkedIn (NASDAQ: LNKD), to Groupon (NASDAQ: GRPN) or Angie's List (NASDAQ: ANGI). So all Facebook needed to do all this time was to remind investors about that potential, or better yet, actually realize it. In the process, the company could get the investor mindset off questioning its IPO valuation and calm their fears about being had.
Up until the news about Facebook Exchange, market attention was focused on the company's P/E ratio. It's still 60X the Street's EPS consensus forecast for $0.55 this year and 49X its $0.67 view for 2013, as per Yahoo Finance; that continues to match up expensively against the trailing twelve month P/E of 13X for the SPDR S&P 500 (NYSE: SPY) and 14X for the PowerShares QQQ (NASDAQ: QQQ). Yet, the stock took back another 3.8% Friday, thanks to management's success at changing the investor mood. Facebook had more news to thank for the day's rise, with an announcement that it had begun running its Sponsored Stories ads on Zynga (NASDAQ: ZNGA) and thanks to a bullish coverage launch by Nomura. I wish Mark Zuckerberg would thank me with a few shares or a consulting contract, but you can certainly thank me now by following me here at Seeking Alpha and at the Wall Street Greek blog.