OFF THE WALL: Update status on Facebook stocks: Like. Share. Ignore.
By Rene Pastor
I get up in the morning, turn on my computer and after going through a stream of junk mail, I go to Facebook to catch up on everything else.
I find out if my niece Emma is singing one her favorite Disney songs, check on my sister Vicky’s family, or dive into the lives of friends living in L.A., Denmark, Singapore or New Zealand, and of course Manila. Facebook is now this instantaneous global village where I can catch up with friends, relatives and random acquaintances.
I remember two blurbs from the Facebook flick, “The Social Network.” I love both of them: “You Don’t Get to 500 Million Friends Without Making a Few Enemies” and “Punk, Genius, Traitor, Billionaire.” Both are left-handed zingers at founder Mark Zuckerberg, the second recalling the lilting cadence of John le Carre’s “Tinker, Tailor, Soldier, Spy.”
This long-winded intro leads to my question: Is Facebook a good investment?
By traditional numbers in grading a company stock, the answer is an emphatic ‘No.’ Many Wall Street analysts and stock brokers would recommend a stock whose ratio of price over earnings — or P/E ratio — is about 15 to at most 20. Apple’s P/E is about 12. Given its cash hoard of $146 billion, many investors would say the firm is undervalued.
In Facebook, the P/E is a nosebleed 200-plus. The thing is there are stocks though where you chuck out the numbers, ignore them really, and your investment decision will rely on your gut and your ability to read future trends.
For the longest time, I was not sold on Facebook’s numbers. That impression changed when I read the company’s most recent quarterly report.
In the second quarter of 2012, Facebook reported $0 — yes nada — in “mobile revenue” or revenue from those ads popping up on your wall. (I’m looking at you, Nordstrom! ) One year later in the second quarter of 2013, the mobile revenue hit $656 million. I gave up computing the number in percentage terms. Let’s just say the jump is astronomical.
Advertising money has increasingly abandoned traditional newspapers and are transferring to social media and mobile devices. My instinct is the process is going to accelerate. Facebook will be one of the main beneficiaries.
I wonder if the growth trajectory of Facebook will mimic that of Google, now the world’s biggest search engine. Google was founded in 1998 and went public in the stock market on August 19, 2004 at an initial share price of $85 per share. In less than 10 years, it hit a record top of $928 per share and most analysts believe it will eventually jump over the psychological $1,000/share mark.
Just a caveat though. The tech space is littered with the carcasses of companies we thought would reign forever, but have crashed and burned. That can also happen to Facebook.
For now, it is easy for an investor to fall in love with Mark Zuckerberg’s creation. I opened a small position by buying some stock below its IPO price of $38. Some analysts believe it will eventually go up to $50, which for me would be a gain of over 35 percent. I am like the guy who buys a lotto ticket and hopes Facebook — like Google — takes off like gangbusters.
If my instinct is right, Facebook will eventually shoot up over the $200 per share level about five or so years down the road. Remember, this prayer comes from the same geezer who lost several hundreds in penny stocks.
‘Off the Wall’ is a weekly column on the stock market by Rene Pastor, a long-time business journalist and commodities analyst. Rene writes for Southeast Asia Commodity Digest, an affiliate of Informa Economics based in Memphis, Tenn. Prior to SACD, he was a financial journalist for Reuters for 23 years. The comments expressed here are the author’s personal views and are not meant to recommend the buying or selling of stocks.
