Come Off The Sugar High: Go Against The Grain On Facebook

Sep.12.12 | About: Facebook (FB)

Traders felt relief that they finally heard from the man they were starting to fear was an apparition: Facebook's (NASDAQ:FB) Mark Zuckerberg. The strong move up that followed, tough, was akin to a sugar high. It won't last.

The stock, already trading at a price-earnings ratio of over 70, despite the dark distinction that they cut numbers as they went public, has to trade on more than appearance.

This much we know: Zuckerberg was the belle of the ball in the months-and years - leading up to Facebook's May IPO, which was (mis) led by Morgan Stanley (NYSE:MS). Time Magazine even dubbed him "Person of the Year" in 2010. There was a movie and he cavorted with Warren Buffett.

Then the offering came unstitched, with the stock down nearly 50% and faith lost, and, despite the still-rich valuation, we haven't heard from him since.

Until yesterday. That's when the Facebook founder and embattled CEO came riding into town - San Francisco, that is - to the TechCrunch Disrupt Conference, where he trumpeted the stock.

Referring to employees and a restricted-stock granting compensation program, he said: "It's a great time for people to stay and double down."

There you have it. The biggest disappearing act since certain Chinese vice presidents disappeared and it ends with a table-pound about a troubled stock.

And the stock danced a gavotte. In the wake of his remarks, the stock was up 3.4% in after-hours trading after gaining 3.3% in the regular session. It's up even more this morning.

Like a sugar high, though, it won't last.

Look: It's better hearing from Zuckerberg than not. Even hearing him call the performance of the stock "disappointing," though an understatement by comic proportions, should count for something in the trading public's eye, because there was a legitimately held concern that Zuckerberg was fixated more on maximizing mission than stock price.

In a famous letter in a regulatory filing (infamous as far as traders go) Zuckerberg once wrote that Facebook's social mission trumped its goal to maximize profits.

But heed the underlying truth: mere acknowledgment that a terrible performance is "disappointing" or self-serving observations about self-dealing (employees should double down!) should not drive the stock ever higher.

And then there was mobile.

Facebook's future rests with it, but they haven't gained a decent footing. Worse, Zuckerberg told us what he won't do: go into the smartphone business like Google (NASDAQ:GOOG) or Apple (NASDAQ:AAPL), but everything he told us he will do fell under the category of the highly speculative. Zuckerberg, for example, talked longingly about the potential of search.

But without a new product in the cupboard--much less pennies to the bottom line that will start making that PE ratio more modest - that won't do you any lasting good.

Breathe a sigh of relief that Zuckerberg emerged from his cave. And another that he at least acknowledged the existence of the stock, but don't chase it - as traders did in their rapture yesterday--without a firm plan for mobile. In fact, considering the misguided move up, we suggest going against the grain and selling it.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.