By Alex Salomon
Another week and no let down on the roller-coaster ride from Europe to the rest of the world! And talking about roller-coaster, I’m definitely going to have to comment on Facebook (FB), so read on! Here are this weeks 5 Thoughts:
1. This column has been talking about the ECB’s Chairman Mario Draghi a lot and expectations into his Thursday press conference were really a mixed bag: on one hand, there was (thin) hope he would come out guns blazing straight from a Hollywood movie scene with an unprepared statement and shock the world with bazooka measures and right the European ship; on the other hand, there was preparedness for a usual, common let down, because this was never really going to be a Hollywood movie and Draghi probably was reminded that the Germans were really in charge and that he had to be reined in. So we went from high hopes to no hopes, as Draghi could not use the bazooka.
However, I still believe that he holds the keys to a more stabilized Europe, and to powerful instruments to help the EU (including various “QEs”).
Yet, before anything significant can really happen in Europe, Italy and Spain need to get over the hump of national pride and formally ask for help from the EU; ideally, we would also need good news from Greece (akin to the news emerging from Ireland that things will be OK, after all). As well, we need macro numbers to not sink so fast that help will be “too little, too late” (that includes France staying above water as well as Germany playing the game).
In the meantime, the drama carries on, so stay tuned!
2. On the flip side of the Draghi experiment, the US payroll numbers came in better than expected, providing a big relief rally to close the week with a bang. With the S&P 500 at 1390, the Dow back above 13,000 and the Nasdaq close to 3,000, as well as the German DAX flirting with 6900, I really believe that regardless on one’s bias on the stock market, it is worth noting that despite everything that has been thrown at it, despite all the headwinds, despite all the events, all the negativity, all the fear, all the real issues, the resilience of the market has been quite impressive. Whether one’s bias is bullish or bearish, the fact remains that the bears had a good shot at crashing the house with all the bulls in it and yet the bears could not capitalize.
It does not mean the markets are in the clear, but the point remains: crashing the house is not as easy a fight as all the global negativity was trying to lead us to believe.
3. Right after I found this picture graphic showing research ratings on Facebook, See It Market’s Ross Heart and myself were having a friendly Twitter rant (@heartcapital and @alex__salomon) and I wanted to expand a bit on it. Basically, we were agreeing and ranting that while most traditional research firms spend a considerable amount of time and resources covering stocks with ratings and research, it remains a mystery that most Wall Street research works off a “target a higher price” approach; this in contrast to Warren Buffet, who founded most of his immense fortune with a “buy super duper low” philosophy?
There is nothing new about this thought of the week but it had been a long time since I last conceptualized it. Now, go back to the picture graphic about Facebook (FB) coverage by traditional firms.
My first rant comes from seeing only 1 out of 38 analysts currently as a “sell” rating on the stock — the statistics don’t stack: FB has performed way too poorly not to wake up some sell signals.
My second rant comes from seeing firms with “buy” ratings and much higher price targets completely avoiding the Buffet style investment!!
My third rant comes from the lack of forthcoming, subsequent notes and coverage either going haywire on the stock (sell, sell, sell!) or going Buffett on it (praise the markets for dumping this gem and be thankful to scoop shares at much lower prices).
And my last, final rant on this topic: most traditional research firms work in a system where they cannot lose, yet most of the customers blindly follow their recommendations and cannot seem to be able to win.
4. Speaking of Facebook, while it is clear that the stock is broken, I had some fun using Yahoo! Finance interactive charts; going back many years and looking at the early trading days of several companies, I was able to see how Facebook was stacking up.
I am just going to share a few but this was fun! (all numbers are adjusted to pre-splits)
So, Facebook went from $40 to $20… what’s in its future?
Intel seems to have gone from $45 to $34 back to $48 down to $39 and hit $125 in 1987 and was stuck under $125 4 years later in 1991. Conclusion? Facebook could do the same thing.
Amazon (AMZN) started at $17, spent some jail time around $14-$15 and jumped to $25-$30. Conclusion? If the Facebook IPO had not been botched, it could have been a repeat (Todd Harrison recently tweeted if Facebook priced at $19, it would likely be trading at $38 now).
Microsoft (MSFT) was stuck between $9 and $11 for its first 7 months of trading (with big volatile 10-20% swings from bottoms to tops) then finally took off and never looked back. Conclusion? Facebook needs to get its game going!
Google (GOOG), of course, was stuck from $100 to $120 for 3 short months and then exploded. Conclusion? Facebook has lost the first inning by a blow out!
Netflix (NFLX) in 2002 provided some roller-coasters of its own: starting at $8, plunging quickly to $6.40, jumping to $9 and down to $2.50 in the first 5 months, only to slowly climb back up and shoot higher. Conclusion? Netflix gives hope to Facebookers!
5. Facebook was clearly on my mind a lot during the week and I also want to reiterate some thoughts about the company, not the stock. I have already written some columns about the future of advertising and social networking, but I am always mesmerized by what the future could hold for Facebook and social media -and by the fact that said future is still mostly unwritten and uncharted.
So, here are some thoughts to chew for the rest of the week …
Will Facebook ever launch a corporate version of its software, for CRM management, video conferencing, company-wide chat rooms, data hosting? Maybe Facecorp?
Will Facebook ever offer the possibility to watch shared live events, concerts, movies, games, to share across continents and timezones? Facefun?
Will Facebook ever reconquer the Twitter space and live value added content? Facetter?
Will Facebook ever manage to monetize private pictures, introduce new social advertising, tailored to your friends, their pictures and videos? Facestore?
Will Facebook ever conquer the new, uncharted world of social & emotional advertising and create a “credit-card model” for ads, where the initial CPC is minimal and the charge is based on a % of success? Facebay?
I don’t know, but they have 10 billion reasons to try and eventually, probably, 1.5 to 2 billion customers to try it with.
Let’s revisit in 2018!