Is Time For Facebook Investors To Literally Face the Book (Value)?

Reggie Middleton's picture

Facebook gave its first quarterly report as a public company yesterday, and it failed to deliver the goods. Unfortunately, but as can be expected, the MSM and the sell side have apparently failed to pick up on the most pertinent aspect of the conference call, which also happens to have been one of the first things uttered by its young CEO. To wit:

We ended June with 955 million monthly active users, over 1/2 of whom used Facebook on a daily basis and over 1/2 of whom used Facebook for mobile devices. We saw more people using our services at the end of June than at the end of March across all key countries, including 3 million more people in the U.S. Growing the network of people who use Facebook and expanding the social experiences available to them remains the foundation of our efforts and the key to our future success.
Let's parse those words... "Growing the network of people who use Facebook and expanding the social experiences available to them remains the foundation of our efforts and the key to our future success.
Should the astute fundamental investor (of which there aren't many of us left, are they?) take Zuckerberg's word as to the key to Facebook's future success? If so, methinks it's time to start stuffing those long term puts under the mattress, to wit...

Reggie Middleton on Facebook user growth

There's a whole lot more to cover from the call, but this graphica above combined with the CEO's opening comment pretty much sums it up. Go to 22:24 in the following video for more of the same, just 3 months ago! Sometimes you simply have to break things down in simple terms to get everyone to say, "Golly Gee!"

On Wednesday, 27 June 2012 11:01, I penned Facebook Bubble Blowing Justification Exercises Commence Today, excerpted as follows...

There's an awful lot of chatter in the blogoshpere over the last 48 hours discussing the remote possibility that Morgan Stanley would be able to defend the Facebook offering as properly priced. PUHLEASE! In case my readers and subscribers don't recall my many warnings on this company and the hype job put on it by Goldman and Morgan - reference As I Promised Last Year, Facebook Is Being Proven To Be Overhyped and Overpriced!, let's run through a quick refresher course.

As is often said, a picture is worth more than 982 words...

fb 6-26

Facebook last traded during regular hours at $26 and change, although it debuted to much fanfare at $38 and rose to $42 or so. So, what did the esteemed analysts of Wall Street have to say about this investment dog?

6 Buys, 3 Neutrals

Average Price Target = $39

BofA/Merrill – Neutral - $38 PT
Goldman Sachs – Buy - $42 PT
Oppenheimer – Outperform - $41 PT
JPMorgan – Overweight - $45 PT
Piper Jaffray – Overweight - $41 PT
Wells Fargo – Outperform - $37-$40 Range 
Credit Suisse – Neutral - $34 PT
Citigroup – Neutral - $35 PT
Morgan Stanley – Overweight - $38

How much does the guy who called Facebook a dog from the begininng think its worth? Again, as excerpted...

The specific, numerical, actionable answer from my team is the purview of paying subscribes only, but we can always throw some common sense on the topic for free - as per pages 6 and 7 of our March Facebook valuation report -icon FB IPO Analysis & Valuation Note - update with per share valuation (317.36 kB 2012-05-21 09:43:30), pages 6, 7 and 10.

FB IPO Analysis  Valuation Note Page 06FB IPO Analysis Valuation Note Page 06

FB IPO Analysis  Valuation Note Page 07FB IPO Analysis Valuation Note Page 07

FB IPO Analysis  Valuation Note Page 10FB IPO Analysis Valuation Note Page 10

Let's face it, FB was hot not only because FB was a popular destination for the social media crowd, but more so because "sheeple" not only want to follow big name brands to lose money, they need to! They need their hard earned assets removed by none other than the sell side agents doing God's work, among others. I made this perfectly clear in The World's First Phenomenally Forensic Facebook Analysis - This Is What You Need Before You Invest, Pt 1. It's as simple as this, Who are you going to believe, the sell side hype machine or your lyin' eyes (AKA, BoomBustBlog performance and accuracy)? Reference Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best? for more on the same.

Professional and institutional BoomBustBlog subscribers have access to a simplified unlocked version of the valuation model used for our Facebook analysis, available for immediate download - Facebook Valuation Model 08Feb2012. The full forensic opinion is available to all subscribers here FaceBook IPO & Valuation Note Update. It is recommended that subscribers (click here to subscribe) also review the original analyses (file iconFB note final 01/11/2011) as well as the following free blog posts on the topic:

  1. Facebook Registers The WHOLE WORLD! Or At Least They Would Have To In Order To Justify Goldman’s Pricing: Here’s What $2 Billion Or So Worth Of Goldman HNW Clients Probably Wish They Read This Time Last Week!
  2. Facebook Becomes One Of The Most Highly Valued Media Companies In The World Thanks To Goldman, & Its Still Private!
  3. Here’s A Look At What The Goldman FaceBook Fund Will Look Like As It Ignores The SEC & Peddles Private Shares To The Public Without Full Disclosure
  4. The Anatomy Of The Record Bonus Pool As The Foregone Conclusion: We Plug The Numbers From Goldman’s Facebook Fund Marketing Brochure Into Our Models
  5. Did Goldman Just Rip Its HNW and Institutional Clients Once Again? Facebook Growth Slows Pre-IPO, Just As We Warned!
  6. The World's First Phenomenally Forensic Facebook Analysis - This Is What You Need Before You Invest, Pt 1
  7. The Final Facebook Forensic IPO Analysis: the Good, the Bad & the Ugly

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mendigo's picture

I liked the term they used: they a developing a "monetization engine". Isn't that what john gault was working on? Step back when Ben fires off the monetization cannon. You really can't get enough hyperbole in a day.

kegman's picture

"Growing the network of people who use Facebook and expanding the social experiences available to them remains the foundation of our efforts and the key to our future success"


Is success determined by the number of network users and their experiences or in some as yet undefined revenue generation plan?

Blue Horshoe Loves Annacott Steel's picture

I'd rather have Reggie Middleton as the President than Barack Obomber.  

Then again, they'd probably pull a JFK/MLK/Malcom X on Reggie...

WTF_247's picture

Answer to finding revenue in mobile = just take the money and start a new mobile company.  I would guess with the 100s of millions they are going to spend trying you would get a far, far better return giving 10 or 20 innovative startups 10mil each.  FB would make more on their investment doing that than betting the money on 1000s of employees trying to fix a square peg in a round hole.

disabledvet's picture

Probably can't short it until it gets delisted...which should come relatively soon.

BeetleBailey's picture

Gee...where's douchebag MDB? Hmmmm...where are you douche?

Carpathia's picture

A fool and his money are soon parted. Surprise,, surprise users of FB pay nothing and there numbers continue to grow. Plus ca change....

Gadocat99's picture

Insiders can sell on Monday I believe.

"There are 1.7 billion shares of Facebook currently sitting on the sidelines. The biggest chunk of those shares, 1.2 billion of them, will be released from their lock-up provisions in 177 days. That’s in November and is a pretty standard lock-up period for an IPO. The first slab of 271 million insider and principal shareholders stock will be available for sale in 86 days, an unusually short lock-up period." -- 5/22/12

Matt's picture

The bigger issue is that people using mobile devices don't see ads. How to make ad revenues from mobile devices? Apparently, finding the answer to that question requires at least 40,000 employees and billions in capital expenditures.