Facebook 50 Days: The Positives And Negatives

Jul. 9.12 | About: Facebook (FB)

So, Facebook (FB) has now been a public company for 50 (calendar) days. The stock has already seen quite a few highs and lows, though one must admit it has been a much more tumultuous ride than expected, being the most anticipated IPO in a long time. The stock has dropped from the opening price of $45 to its recent price of $31.73, a fall of about 30%. However, since the lows of June 6th 2012, Facebook has risen close to 25%, going from $25.52 to the recent price of $31.73. In comparison, Dow Jones (DJI) rose by just 5% in the same time period. So maybe things are beginning to look up for the stock.

This article recaps a few of the positive and negative news that have hit the stock so far, trying to be as neutral as possible while addressing each of the issues by presenting counter points where applicable. We also present our take towards the end of the article. Let us get the negatives out of the way.

Some Negative Developments:

The Absent CEO: The CEO Mark Zuckerberg is still absent from public view, in spite of all the noises about the IPOs technical glitches. This must be one big lengthy honeymoon and maybe he deserves it after the IPO and the wedding the same weekend. Sure, Zuckerberg has always been the "reserved geek" rather than the "charismatic enigma" that Steve Jobs was but as time goes by, investors would want to hear more from the poster boy, not just about his vision but on all facets of being a public company.

Not So Engaging Users: Imagine if a survey says one third of your consumers are buying less of your products now than they did 6 months ago. Sounds scary, right? For a social media site like Facebook, the equivalent is people spending lesser time on the site. That is exactly what this report says. Maybe people are tired of using the same features. Maybe people want something newer. Regardless, if this trend continues the revenue will take a hit.

GM Pulls Out: Facebook received its first big jolt even before going public. General Motors (GM) pulled out of its $10 million advertising engagement with Facebook, saying the campaign wasn't very effective. Hey, GM there is a chance that maybe it's the product that is not good and not the advertising platform.

Others: There have always been valuation concerns with Facebook, though others like LinkedIn (LNKD) appear way more overvalued. There have also been concerns about the slowing user growth rate. This article presents a few reasons why the slowing growth rate might not be that big a concern after all.

Some Positive Developments:

Apple's Integration: This is certainly a big plus for Facebook going forward. Apple's (NASDAQ:AAPL) iOS6 integrates Facebook way beyond level. Not only will Facebook be installed as a default application, your Facebook events and reminders will be part of your Apple device calendar. Knowing how iPhones sell like hotcakes, this can be a huge revenue booster for Facebook.

First Earnings Report: Facebook will report its first earnings as a public company, on July 26th. While this is nothing positive or negative as such, the fact that the fund managers are buying more as earnings near is a positive for the stock. Maybe they already have some whisper numbers going on. Individuals beware though, as this could easily be yet another pump and dump trap. On a side note, it will be interesting to see if Mark Zuckerberg will be leading the first earnings call.

GM Might Be Back: How ironic that Facebook and its business partners are behaving exactly like the teens on Facebook who fight and announce their split on the site, only to get back together a week later. GM and Facebook are supposedly back in talks about advertising again.

Telefonica: Telefonica (NYSE:TEF) is a European telecommunications giant. Facebook, along with other tech giants like Google (GOOG) recently signed a partnership with Telefonica to make mobile payments easier. Research has shown that if there is an easier payment mechanism for mobile users, a lot more app downloads will take place. Given Facebook's eagerness (perhaps panic) to make it big in the mobile space, this is a positive step to go with Apple's iOS integration.

Others: There have also been some other minor positive news like the introduction of a "want" button similar to the "Like" and "Recommend" buttons and the settlement of the Yahoo (YHOO) dispute.

Our Take: We believe in valuations, be it a growth stock or a dividend stock. That has made us stay clear of Facebook so far. Being big Apple fans, we certainly like the confidence Apple and Tim Cook are showing in Facebook. Whenever faced with a question about Facebook and partnerships, Tim Cook has always sounded positive. And now the iOS integration furthers the belief. We are taking a wait and see approach with Facebook as of now. The earnings will provide a clue, especially the numbers about new users and ad revenue -- Facebook's bread and butter.

Disclosure: I am long AAPL.