MorningWord 7/31/13: In the last week FB, up more than 40% since reporting better than expected Q2 earnings, has gained almost the entire value of YHOO. I am still a bit floored by the price action not just because of the magnitude of the rally but the ferocity of it, the stock traded 366 million shares on Thursday following the beat, the largest single day since its IPO on May 18, 2012 when the stock traded 580 million shares and closed just above the $38 offering price, a level not to be seen again. Well, until this morning where it is trading in the pre-market. Despite the expected down-tick in trading volume from Thursday, the stock has traded at a continued torrid pace, 136 mil, 125 mil and a spike yesterday to 174 mil shares.
The magnetism in the last week of the $38 IPO price is quite fascinating. The fact that a well covered and well owned stock with a $64 billion market cap last Wednesday could in less than 5 trading days have a market cap north of $91 billion without any meaningful corporate action is mind-boggling. But the definition of well owned is obviously debatable, on Monday, Jon Najarian of OptionMonster tweeted the following stat:
$FB institutional ownership is under 35% you take that to $GOOG (71%) and this is a $50 stock @cnbcfastmoney
— Jon Najarian (@optionmonster) July 29, 2013
Large cap tech has been a dicey proposition of late, and large institutional investors who have been underweight the stock now have a reason to buy it, at a time when some of their horses of 2013 are starting to falter (GOOG, MSFT & Semis).
So the gazillion dollar question at the moment is if the strength can continue? For the time being I see no reason what soever to step in front of this thing, but I can’t for a second get my arms around the notion of buying the stock despite the fact there are probably a few more quarters of strong mobile growth. But what we have here is a massive change in expectations, where heading into the Q2 print there were very low, but now becoming fairly high. On the conference call FB CFO addressed this issue of expectations, but for the time being know one seems to care:
“ We expect newsfeed ads to remain the main driver of revenue growth in the second half of the year and we believe we have a great opportunity to continue to drive long-term growth by improving the quality and relevance of these ads. However remember that newsfeed ads really began to contribute to our revenue in the third and fourth quarters last year which will make for more difficult year-over-year comparisons in Q3 and Q4 relative to Q2.”
My sense here is that the stock will need to consolidate some gains prior to attempting a move to the all time highs made on IPO day of roughly $45, but given the recent spike in implied volatility, the best trade on the board at the moment, without picking a direction may be to play for vol to settle in. Stay Tuned.