Meta Platforms Inc (META)

[imiloa]

HOVA, not to rain on the parade, but here's some balancing food for thought, from an email I just sent to some friends.

In the interest of open disclosure, I opened puts against FB (betting against) last Friday and doubled-down this morning.

I'm not posting this here to peddle influence.
iHub's influence on FB is a drop in the bucket.

Just adding some counterbalance to the exuberance.

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re: Why analysts are saying the market is great and stocks will go up, I maintain that's their machiavellian role in the game. Compare to "loosest slots" ads in the casino paradigm.

Remember when Yahoo was at $400 back in 1999 and analysts were championing targets of $600-700?
Were they that dumb?
Or were they quieting profiting from sheeple buying YHOO from their associates at $400?

FB is a good current example.
FB announced positive earnings last month, 0.13 vs 0.09 the prior quarter.
That's a 44% rise in earnings, and the stock spiked up a matching 44%, from $27 to $39, in a couple weeks.

But note that $39/0.13 is a 300:1 price/earnings ratio.
Typical P/E ratios are 8-12 for solid performers, and 15-20 for aggressively growing companies.
This means the market is currently valuing FB at ~15x-20x a rational market value for a fast growing tech company.

But FB has unlimited potential for growth, right?

According to this site, FB currently has 835m active users:
http://www.internetworldstats.com/facebook.htm

That's ~11% of the entire world population.
Roughly 40% of the world has internet access currently.
So theoretically, FB could grow its user base 3x-4x if it got all current net users on their [sic] page.

Even if FB could 4x their user base, they would still need to reap 5x avg revenue per user (ARPU) to merit current valuation. Given the bulk of developing world users don't have the spending capital to inspire FB advertisers to care about them, reasonable numbers are probably 2x user growth and 10x ARPU increase.

As of last spring, FB ARPU was actually declining:
http://techcrunch.com/2013/01/30/facebooks-revenue-per-user-in-north-america-is-now-3-4x-europe-and-nearly-6x-asia-but-growth-in-its-cash-cow-is-slowing-down/

In the last qtr, the numbers were boosted 44% by the new News Feed ads (insertion of ads into your News Feed, that look like friend posts).
This was a quick boost, but from the general user feedback (including my own), this is a very annoying change, and one that will continue to annoy users going forward, meaning potential alienation over the long-term.
http://www.valuewalk.com/2013/08/facebook-inc-fb-pt-boosted-by-bernstein-research/

Key question then:
Can FB double user base and grow 10x ARPU within a decade to merit their current 300:1 P/E ratio?
http://seekingalpha.com/article/596291-facebook-this-is-the-bet-you-are-making

I'm guessing not.
And I feel the near-term price will also slide, as people start to read more and grok that reality.
The chart already shows this confidence waning:



TRIX turned downward after the peak of the spike, CMF & A/D are dropping, and RSI is still at/over 70 (overbought), even as it struggles to trade higher on the rosy analyst reports.

Meaning, like YHOO in 1999, the analysts are championing FB at $45, while institutions are dumping.

As to profiting from the disconnect, as noted before, I'm only playing options in the current market climate, usually 2-3 week plays.
I opened a spread of FB puts (bets against) last Friday and doubled-down this morning.

Because FB rose today on the raised analyst targets, I was able to buy puts for much cheaper today, half price from values last Friday. eg: as low as:

FB Aug 30 $35.50 Put @ 0.18
FB Aug 30 $36.00 Put @ 0.24
FB Aug 30 $37.00 Put @ 0.43

Caveat: With Aug30 puts, I lose if the correction doesn't happen before end of month.
If the analysts keep spouting rainbows and unicorns, they might be able to keep it aloft that long.
But the chart indicators, P/E reality, and the rising concern over Hindenburg Omen are all on my side of the play.

Viz, FB faced serious resistance trying to claw its way back up to $39 today.
And, per level-2 (which shows bids/asks from all participants beyond the current strike price), the sellers into today's rally were the deep pocket market makers who own the casino:

EDGX -- Direct Edge, a NJ based mini-exchange: http://www.directedge.com/About.aspx
BATX, BATY -- BATS exchange: http://www.batstrading.com/support/
ARCX -- Archipelago network, used mainly by deep-pocket investors.
AMEX - AMEX exchange
PHLX - large options exchange: http://www.nasdaqtrader.com/Trader.aspx?id=membership_phlx
etc...

ie: Today, retailers (avg citizens) bought on analyst hype, while deep-pockets dumped.
What does that suggest about the future of the stock price?