MorningWord 9/17/13: As a reversal of fortune, FB’s pre-IPO buzz to post IPO bust barely beats the 100% gains in the stock from the June 2013 lows to the recent Sept highs, when the company gained over $50 billion in market cap. In my 17 year career, I can not remember such a powerful sentiment shift, where so many players were caught off-sides on the situation, except maybe the AAPL mania that broke a year ago this week.
FB has been a juggernaut since their July 25th Q2 earnings announcement where the company demonstrated their ability to get paid on mobile ads and the stock rallied 29% in one day. Since that day’s close the stock has made a series of higher highs, setting new all time highs last Thursday at $45.62. Then came yesterday, the day that the market gapped up 1% because something DIDN’T happen, and while the broad market had a fairly Euphoric tone to it, some recent winners, particularly in Tech, had a very bad day. FB closed on the dead lows of the day, down 4.06% and AAPL closed a hair off its lows of the day down 3.18%.
What’s interesting about the price action in both, is that these 2 companies spent the first half of the year in the doghouse both down on the year and down much more from their 52 week highs. Aside from the dramatic sentiment shift in late July, their are few comparisons to the 2 stories, but the most important take-away from the last 2 months of trading in both is that just as things overshoot to the downside, they will do so to upside. Then here is the kicker, they can do so again (see AAPL testing key support yesterday).
While the AAPL story is pretty clear in the short term and the potential catalysts well known, the stock is likely to remain range-bound between $400 and $500 based on near term sentiment shifts for a long time. That is until there is some sort of fundamental game-changer. And an increased buy-back ain’t gonna do the trick at this point.
On the FB front, it is all about continued execution. The company hasn’t really seen success in any of the their new products in the last year (see Home). I will bring you back to their CFO’s comment from their Q2 call on July 25th that I think should take front and center as investors gauge the stock’s ability to keep moving higher and how expectations for continued torrid growth could cause investors to possibly take pause prior to the Q3 results:
“ 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.”
This means that the October earnings report for Facebook will be one Big Kahuna of a report. The extrapolation that investors have made since Q2 earnings is of a company on track to rapidly accelerate its mobile online ad revenues. That rapid future acceleration is used to justify its $100 billion market cap. Q3 better deliver, or a lot of presumptive investors will look for the exit just as quickly as they jumped on the bull bus.