It Is Still Too Early To Go Long Facebook

Oct.24.12 | About: Facebook (FB)

Facebook (NASDAQ:FB) is having its best day in since its IPO debacle on the back of a better than expected earnings report and reassuring words about its progress in monetizing mobile growth. I have been a skeptic on the company since it went public. Although the time to short the shares might have passed, the stock still does not offer investors a good entry point even the stock it may have now established a bottom in the $18 to $19 a share range.

8 reasons FB is still an "Avoid" at just under $24 a share:
 

  1. Insiders are still selling the stock and hundreds of millions of shares will hit lockup expiration by the end of the year.
  2. A good portion of today's rally is "short covering". Shorts hold 15% to 20% of all shares outstanding.
  3. Overlooked in Facebook's rise today is that the company lost money (on a GAAP basis) for the quarter.
  4. While mobile ad revenue was up and now accounts for around 15% of revenues, core desktop ad growth slowed significantly. Sales for this channel rose 17% in the third quarter from a year earlier, down from 26% in the second quarter and 37% in the first quarter.
  5. In addition, revenue from social gaming continues to disappoint.
  6. FB now sells for 100 times trailing earnings, more than 11 times revenues after today's rally and consensus earnings estimates for both FY2012 and FY2013 have fallen over the past three months.
  7. The company's CEO, Mark Zuckerberg, may have traded in his hoodie for a suit occasionally but the 28 year old wunderkind is still learning to the be face for a public company and there still will be hiccups as he grows into a "seasoned" leader.
  8. The "excluded" stock based compensation for the company comes to approximately 20 cents a share (The company is expected to "earn" 48 cents a share in FY2012 not including this unrecognized expense)

Author's Note: An investor looking for play on mobile advertising should look to Google (NASDAQ:GOOG). This company should hit $8B in mobile revenue annually this year compared with the $150mm a quarter Facebook is delivering. Google also provides much lower valuations based on P/E, P/S, P/CF……etc..

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.