By Billy Gallagher
The rise and fall of Facebook's (FB) stock has been one of the most-covered topics of the summer, and for good reason. Everyone wants to know what will happen next, so we asked investors, CEOs and media pundits about when they think the best time to buy will be.
Because of its 950 million users, an Oscar winning movie based on its founding story and an ecosystem of other companies built off of it, Facebook enjoyed one of the most anticipated IPOs ever. Since then, watching the stock falter has been "painful" for Facebook, as CEO Mark Zuckerberg puts it.
Analysts for Morgan Stanley and J.P. Morgan Chase cut their price targets for Facebook on Friday, pushing shares to $18.06, less than half its IPO price. Tuesday, the stock fell even further, closing at $17.73, a new all-time closing low.
What will the stock do in the coming weeks, months and years? And, more importantly, what should you do? As in, should you buy it?
We asked some experts for their take on the matter. Angel investor Peter Shankman, TechCrunch contributor and EIR at Javelin Venture Partners Semil Shah, co-founder and CEO of Stockr Vinny Jindal, co-founder of Ampush and former investor at Goldman Sachs Jesse Pujji and TechCrunch's own Facebook expert Josh Constine shared their thoughts with us.
Here are our major takeaways:
There Are A Ton Of Moving Pieces
"There are some macroeconomic factors at play in the market, as well micro (specific to Facebook)," Shah tells me. "It's important to keep in mind that even if Facebook didn't exist as a [public] company right now, the market would be jittery overall given the country's deficit and political uncertainty (in election years) and concerns about defaults in the Eurozone, among other issues. On a micro-level, Facebook went public at a multiple 25x its annual revenue run rate."
"It was priced at a very high earnings multiple, leaving little upside for investors in the short term," Constine says. "Once people realized there was no easy pop to slurp up, those who didn't believe in the mission dumped their shares. Investors may be holding off not just for signs that its mobile news feed ads get seen and clicked (there's already some evidence of that), but until Facebook can show them at a scale to replace its web ad business over time."
Silicon Valley And Wall Street Are Separated By More Than Just Miles
"Wall Street is terrible at thinking long term," Pujji says, noting his time at Goldman. "All the best investors…the only thing they do that's better than other people is think in 10-year increments not quarter to quarter…Wall Street doesn't think more than two years out. They're incapable of it based on the way they're incentivized."
"This all has to do with the mechanics of Wall Street and very little to do with Facebook," he adds. "Think about it - if a company's stock goes down 20% in a day, did anything really change in that company? Wall Street is as emotional as they come."
"Facebook is more of a stored-value company than most," Constine says. "I don't think Wall Street has adjusted to properly valuing companies that not only are doing well now, but are poised to shut out disrupters and monetize subtle data goldmines."
A Magic "Buy It Now" Share Price Is Difficult To Pinpoint
"Multiple dot com realities have shown that every time we say it can't get any worse, it finds a way to get worse," Shankman tells me, explaining that he wouldn't buy yet.
Shankman says he would buy if it went down to $10-$12, "just to say I have a lot of it." He recalls buying Apple stock (AAPL) at $9 and holding on to it despite everyone disparaging the stock at the time.
"I could see myself buying in the mid-teens, but not for a short flip. For the long term," Jindal says, explaining that the stock is still currently overvalued.
"Facebook creates too much value for the world and has too much ad-targetable data for it to stay this far down for long," Constine claims. "I'd recommend buying soon or right when the last big lockup expires."
Remember, Remember, $FB In November
"People are looking for the first indication that [mobile advertising and sponsored stories] are working, and then you'll see a pop in the stock," Jindal says. "It's proven to be a lot more volatile than other similar, mature companies."
"I think the stock will continue to waver, and possibly dip again when the employee lockups expire," Constine says. "A brilliant, popular new product or a new ad unit with huge potential and strong endorsements from the advertising industry could boost it, though."
The expiration of the last lockup period put a good deal of pressure on the stock; in mid-August, 271 million shares were released and the stock slid over 4%. After Tuesday's 8-K filing with the SEC, Facebook won't face quite as much downward pressure this fall as it would have.
On October 29, up to 234 million shares will be available for sale. On November 14, 777 million shares will be freed up for public sale. Before this filing, the company could have had 1.2 billion shares becoming available for sale on November 14.
"I think a lot of employees will sell a little bit of stock, which will add up and cause a dip," Constine posits.
If You Buy, Be In For The Long Haul
The most consistent thing that all five interviewees agreed on was that if you buy Facebook stock, you'll need to hold on to it for a long, long time.
"Personally, I'm 'long' on Facebook because I believe they will grow into their promise and be more than just an 'ad company' but actually leverage their graphs to power some of the web's and mobile's best applications," Shah says. "But, it will take a while to get there, as Twitter poses a threat and Google and Apple currently hold key real estate. I don't see the value in trying to analyze Facebook's stock price per hour. In eight years, they've created roughly $50b in value, a global brand, and massive network effects. Usually when a property has those characteristics, money will follow."
Jindal says he believes Facebook will continue to be our dominant social network for the long run, but could suffer as social advertising becomes an increasingly fractured market.
Constine recommends waiting "a long time" to sell: "Until television as an advertising medium truly falters as mainstreamers watch less broadcast content and budgets shift online. At that point, there will be a flood of ad dollars moving to wherever the most accurate targeting is, and that's Facebook."
"If you're willing to put it in a lockbox and not worry about it for five years, then buy it now," Pujji tells me. "But if you worry about it over the next few years, you'll go crazy."
The Bottom Line: Buy This Fall
The experts were generally able to agree that it would be great to be able to buy at $10 or $12. But you don't want to turn your nose up at $13 or $14 a share and miss the boat in the long run. If you were looking to buy FB, keep an eye on two fall time periods to purchase: late October and mid-November. Specifically, between October 23, when Facebook reports its Q3 numbers and the lock-up expiration on October 29, and right on or after the big Nov. 14 lock-up expiration. The stock should be fluctuating, and toward the lower end at both times.
Either way, the stock will continue to be watched intensely in both the short and long terms. As Shankman says, "This is proving to be hands-down the number one business case study for every B-school for the next 15 years."
Shankman says he owns "around 50 shares" of Facebook from his broker. The others do not own Facebook stock.
Disclaimer: I am not a professional financial analyst. You have to make decisions that are right for your portfolio, and don't come suing me if things don't go your way.