Facebook Wins With Spin, But Is There Any There?

| About: Facebook (FB)

Facebook (NASDAQ:FB) rose 20% this week by spinning its results on a conference call.

Personally I still wouldn't touch the stock with a barge pole. Not until after all lock-ups expire. I know Jim Cramer thinks there's long-side action, and I suppose there is, but we are no longer looking at an IPO here, we're looking at a mature stock.

In purely financial terms, I'm seeing deceleration in revenues and better operating margins, but basically they're marginal. There's $49 billion in market cap supporting $16 billion in assets. Operating cash flow has never been high.

So why should anyone want this company, ever? I'll give you three reasons - the cloud, open source, and mobile.

The most important point to make is that Zuckerberg understands the direction technology is moving, and is doing everything he can to get there on schedule. The site was originally built for Amazon's cloud, but despite the expense (building your own cloud always costs more than renting a leading public cloud) Zuckerberg decided to build his own data centers. I consider that pretty ballsy.

Second, he's building that cloud with open source components. This means he can evaluate programming talent based on actual code, which is much better than a resume. Contributing back to open source projects, immersing your company in the open source ethos, is (I think) the key to successful growth in the cloud era. IBM does it, Google does it. So having a scaled open source cloud, with the resiliency of the Internet and cost structures that can be measured against Google and Amazon, is a very good thing.

Third, mobile. Some of this is spin, and it's what Cramer drooled over yesterday. But having moved half the user base to smartphones is a real thing. Having ads integrated with news feeds, and having mobile users attached first to those feeds, is an accomplishment.

Now a lot of people misunderstand mobile. I think Rocky Agrawal does here. They think it's about advertising. It's not. It's about pushing people down a sales funnel in real time, about getting them the right information when they're about to buy, about dictating that buy. This is more valuable than "advertising," which is only a portion of the marketing budget. This is the whole ball game for retailers. You bring in inventory for x, you sell it for 2x, and everything in between is either margin or marketing. If you deliver customers, not prospects but customers, you have created enormous value.

But that's potential. That's what Facebook hopes to do. And, again, this is now a mature company, not a start-up. I don't like to buy smoke from mature companies, I like to buy earnings. So show me some results over Christmas and I'll look at you next year, with a clear eye.

There's plenty of time to get into Facebook, if it gets things right. I think they can. But I don't think anyone needs to buy them until they do.

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.