Facebook, Facebook, Facebook....?

[A Hunch]

Facebook has 900M active users.
How many of those active users have PURPOSEFULLY clicked on an ad? Have you? I think I did once.

thus the reason that GM and many other businesses are pulling ad space (source Internet Retailer magazine).

[Eddie W]

Tell me one stock that is not over valued. Facebook is no exception, the P/E is > 100. At it's current status, FB worth $15, at most.

[JoeyV]

I wonder if Wayne realizes how effectively he made the case against FB? Like the best argument he can come up with for buying FB is that there are idiots out there who think you should sell, therefore it must be that smart people think you should buy? Little logic issue there Wayne.

1) is just not true. FB has a P/E of 80 (or whatever it is now). Ben Graham would find that offensive for any stock. I find that offensive for nearly any stock without a really convincing story for earnings growth. I don't believe the FB earnings growth story at all. When people start using the China thing as an earnings growth story, the game is over. Have people who keep slinging this around noticed that China is wicked protective of their money and deeply prefers organic growth to Western profits? I think anybody who says "This company is really going to take off when China opens up as a market" is an idiot in nearly any situation. Mr Godot ain't coming.

2) Your second statement isn't even true. FB has 900M users of which they count me as 1. I haven't been on FB for any significant amount of time ever. I am absolutely worthless to them. Many of that 900M are like me. Further,

a) The 900M is actually kind-of a problem. The rest of the world's population is almost irrelevant because they don't have any money or (like me) will never be on FB because they just dont care about that. That means they have no growth there. Equity valuation has a huge component of growth. They need tons and tons of growth to jutify the really high P/E. If they had $1B of revenue with 40M users, they would have a much more compelling growth story.

b) Other posters have covered the mobile device problem. No matter what happens, people only tolerate advertising. If they can avoid it, they are going to do it. Technology is allowing them to avoid it. Here we have a technology company on the wrong side of technology (it happened to CSCO, for example).

c) To justify it's P/E, FB needs better than a 20% increase in ad revenue for awhile. If that's the best you've got, this is a sell for sure. You need to believe that FB is going to take market share of that advertising money as well. The defection of GM puts serious question to that.

d) The "targeted advertising" argument is stupid. There is tons of evidence that the "targeting" is only worth a small amount. Buying something based on an unproven and dubious idea that you think is going to bring explosive growth is just not a way of buying equity successfully. It works once in awhile, but here if it was going to work it would have already worked (or Zuckerberg is too stupid to figure this out which is a different problem).

I honestly think you have to be an idiot to buy this stock. I'd be a buyer around $8 but it will not be there anytime soon. When it is at $8, it will be headed toward 0.....

[Andres]

It could really go either way, speak to the experts: