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Somsanith Donesing
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I'm an independent investor and has been trading stocks for the past 10 years. I also like to write and express my opinion. Hopefully people will find my articles enjoyable and informative.
  • The Stagnation Of Facebook 0 comments
    Jun 5, 2013 11:06 AM

    At the beginning of the year, you heard nothing but Facebook. Either it was the company making a big announcement for its new secret product that kept everyone guessing, or it was a whole bunch of analysts expounding bullish theses about why they thought Facebook Inc. (Nasdaq: FB) would be the stock to own for 2013. Well, guess what? Yes, they got me. I bought into the hype of FB's stock early in the year: it was supposed to be the famous and prosperous stock of the year. I went and opened an account on Facebook and bought its stock too. And let's just say it's a good thing I've read Mr. William J. O'Neil's book -How to Make Money in Stocks- and applied one of his strict rules to my trading plan: it's to keep the loss small.

    Maybe it's still a popular stock, but it's not a prosperous one for this year. Maybe it will be for 2014. We just have to wait and see what the analysts have to say, but I'd suggest listen with your ears virtually closed. Do your own research. For now and until the rest of this year, I see only a downward trend for FB. I believe FB will see its lowest before it will come back up again. And that's only if they have another hyped-up conference and keep us guessing about what their secret new product might be.

    What do I think of Facebook as a user? Well, after my first week of signing up, I was be able to add over a hundred friends. And everyone seems to accept you as a friend. Almost makes you feel kind of special. Then I come to realize that most of them-more so for the attractive ones-have over 2,000 friends in their accounts. It's like they accept anyone who sends them a friend request so they have a big audience when they post anything from motivational quotes, or where they eat, sleep, sit, and even when they're in the toilet, daily. They want you to see every move they make, every emotion they experience, how clever they are at the time, or how silly they can be. That they can easily do behind the computer screen. And they can express all these on FB, the world's most-used social network, where people can stay connected with strangers.

    Do I want to add close friends and family members to my Facebook page? No, not really. I don't see that it's important. Not that I don't want them to see how ingenious or how sensitive I can be sometimes-I don't post anyway. It's because I can connect with my close friends and family in many different ways. Honestly, I can live without Facebook. But I'm going to keep my account open so FB can make their money (even though I don't pay attention to the advertisements on my computer or my mobile phone). But I have to admit that occasionally I click on the ads by accident only because I was trying to X it out and missed. I see a lot of cool stuff on TV that I'd like to buy, though maybe it's the same ads online, I just never notice. In fact, I find that ads on my computer and mobile phone are quite annoying.

    OK, enough rambling, let me give you my insight on the technical aspect for FB. FB's stock is trading under its 50, 100, and on May 27 it just pierced under the 200 simple moving average line (SMA). And if you look at the daily or weekly charts, you can see that it's now trading under its recent support price of $25. Now all the SMA lines and the support prices became FB resistance levels. The next support is at $20 and I do think FB will reach its lowest of $17.55 before it can see the light of the day again.

    At its IPO on May 18, 2012, FB was priced at $38. Its price has declined 36 percent since then. It's going to need more than graph search for it to see $38 again. It has been over a year, and the stock is going in the wrong direction. And to me, that's a bad indicator. In the near term, I don't see a major product line that will help push up its stock price. Unless more analysts come out and make some bullish upgrade, and increase their PT from $32 to $33. But improvements like graph search, verified pages, improving its timeline, and adding a new look to the Facebook news feed aren't enough.

    Looking at its first quarter results, revenue totaled $1.6 billion, an increase of 38 percent from the first quarter of 2012. That's quite impressive. But despite good revenue, higher costs and expenses led to first quarter net income of $219 million, up only 7 percent from $205 million in first-quarter 2012.

    Can FB sustain growth going forward? With $9.5 billion in cash, I think it has to make some major acquisitions and expand its business to more than just upgrading the appearance of Facebook pages. It might see some growth increase from advertising going forward, but I don't think it'll be sufficient. As of right now, I recommend avoiding this stock, until FB can innovate new products or acquire other businesses that will supplement its advertisement business.

    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.

    Themes: short-ideas
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