Facebook Downgrade: Price Target 150
EconMatters | Jul 08, 2018 02:19AM ET
Facebook (NASDAQ:FB) Legal Troubles Far From Over
On Friday Facebook hit an all time high of over $203 a share, and all it took to run up the stock 5% or $11 in two days was an analyst upgrade, but that is what you get in bubble stocks in a bubble market. Right as Facebook was about to break ket technical support around $192 a share on more troubles regarding privacy disclosure issues, an analyst came out with this upgrade out of his ass propelling the stock to a new high. The timing of the analyst call seems highly questionable as Facebook was at this level a couple of weeks ago, and then new information regarding the FBI, FTC and the SEC joining the Justice Department`s investigation into Facebook`s Cambridge Analytica disclosures sent the stock reeling, and on the verge of breaking down hard below the $192 support level, before being magically revived by this analyst call. You think somebody was stuck this stock at all time highs and needed an analyst upgrade to have some other bagholders to sell into going into earnings? That is my best guess! This is Wall Street we are talking about, and things usually don`t just magically appear out of thin air!
Everything Good Already Priced Into Stock
At any rate I read the analyst piece, and there is nothing new that wasn`t already known about and obviously well priced into this stock for years to come. I noticed the analyst avoided all the negative things that has had Facebook and Mark Zuckerberg testifying before congress this quarter, and then changing their tune on Cryptocurrencies advertisements. Again you think that happened out of the goodness of their heart, I bet they started recognizing the advertising revenue hit by being high and mighty with Crypto Advertising standards, and reverted back to the all mighty greedy dollar low advertising standards of past quarters.
Bad Quarterly Comps Heading into Earnings
If you factor in the stock being at all time highs three weeks before earnings in a quarter where their advertising and data collection and selling information practices were under heavy scrutiny by the media and governments in Europe and the United States. I am guessing this had to have some effect on the earnings numbers for this latest quarter, shoot the legal fees alone would require quite a hefty legal write off for the quarter, counting against the earnings numbers. Not to mention that from a negotiation standpoint, advertisers should have been able to leverage lower rates when the heat was on Facebook`s practices. Plus, there are the Facebook consumers that have deleted their Facebook pages all together, and quit the advertising platform in the quarter, that has to affect revenue to some extent. Not to mention bad comps of quarters where Facebook sold data to anybody and everybody for the almighty dollar, surely the recent scandal reduced that business in some meaningful way. Hard to do unscrupulous data sales business when the government is shining a spotlight on your past unscrupulous practices.
Legal & Punitive Legislative Risks
Then there is the risk that Mark Zuckerberg lied in front of Congress, the possibility of an indictment, a large fine, and legislation which will limit Facebook`s future abilities to monetize collected data, and put handcuffs on the types of advertising they can do going forward. Of course that analyst didn`t focus on any of the negatives of the stock when doing his upgrade this past week.
Get The News You Want
2.4 Billion Outstanding Shares=Too Large A Float
He also didn`t focus on the high P/E of the stock with difficult comps year over year, especially given the data scandal, or the 2.4 Billion shares outstanding in the float versus the other momentum stocks with much smaller floats, or the fact that Facebook has already run up a ridiculous amount since 2013, with an upcoming recession just around the corner.
Downside Risk Target? Risk/Reward Profile
The analyst never mentioned what the downside target is in the stock! These analysts just think stocks go up forever, there are no such things as bad quarters, business cycles that end, and economic recessions. Not to mention high borrowing costs year over year due to the interest rate hikes of the Federal Reserve. The cheap money of the easy borrowing QE Era is over for stocks. Valuations are going to matter, bubbles pop, and somebody is left buying at the top of the market, and finding no magic chairs left for them when the music stops playing.
So the analysts always talk about the upside target, but remember when they were pumping up Valeant stock at over $250 a share, did analysts ever tell you in the midst of that pump job, that the downside risk was that the stock would be below $20 a share in less than a year? Well my first downside target is $150 a share, then $100 a share as the major decade long headwind which we will call the QE Central Bank Bubble Valuations Era comes crashing down along with ridiculous Tech Bubble 2000 like Valuations.
The Forbes List Curse
When people start talking about Mark Zuckerberg being the 3rd Richest Person in the World and passing up Warren Buffett in a quarter when you are brought in front of Congress to testify for wrongdoing, you know that is your clue to short a stock, the end is near, this bubble has left the building. We have gone completely off the tracks, if ever there was a quarter to short Facebook going into earnings it is this quarter! Good Luck Facebook bagholders going into earnings, don`t get nervous I am sure pigs never get slaughtered on Wall Street and Earnings Never Disappoint!
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