This is an excerpt from an article I originally published on Seeking Alpha on February 13, 2013. Click here to read the entire piece.)
On Monday evening, February 11, 2013, Bernstein downgraded Facebook (FB) from Outperform to Market Perform. {snip}
Source: FreeStockCharts.com
In the downgrade, Bernstein cited concerns over ad pricing, revenue growth and valuation. SPecifically, Bernstein is doubting that FB can grow fast enough to justify forward multiples to EBITDA. While the market seemed to respond this critique, I think it is more important to judge FB on sentiment since it is hard to rationalize the current valuation in any other way (for example, when sentiment is strong, it is a lot easier to rationalize high valuations with high expectations). {snip}
{snip}
The overall put/call ratio is 0.71 and still at the lows for FB. {snip}
The marginal shift in sentiment is particularly notable given Facebook has reported earnings three times and each episode has suffered a negative reaction, albeit in different ways. {snip}
These gyrations are understandable as there is plenty of uncertainty on Facebook’s monetization prospects. The company is throwing a lot at the wall and only time will tell what sticks. Analyst valuation models have to utilize a LOT of assumptions. {snip}
From a trading standpoint, the current breakdown in the stock provides an opportunity to buy some “cheap” protection for short positions. {snip}
In the meantime, insiders are still unloading large quantities of stock to lock in profits (and certainly to balance out portfolios well over-weighted in FB riches). Since earnings another $85M in shares have been sold in automatic trading plans, the vast majority of it by one director (James Breyer). Note well that these amounts are small potatoes compared to what insiders have already locked in since FB went public:
Source: Yahoo!Finance
These awesome numbers are a healthy reminder that the primary purpose of an IPO is not to enrich the latecomers!
Be careful out there!
This is an excerpt from an article I originally published on Seeking Alpha on February 13, 2013. Click here to read the entire piece.)
Full disclosure: short FB