Expect a Facebook Phone in 12 Months
Published: Thursday, 26 Jul 2012
By: Lee Brodie
On Thursday all analyst could talk about was Facebook’s earnings report, just months after its most anticipated IPO in memory.
Largely they were focused on a few metrics. In the report, the company said its operating margin was negative 63 percent during the second quarter and that capital expenditures had increased 213 percent from a year ago to hit $413 million. “That’s really weak,” noted trader Joe Terranova, chief market strategist for Virtus.
In the after market, Facebook shares plunged to an all-time low. But around $24, Terranova as well as trader Mike Murphy, founder and managing partner at Rosecliff Capital, both recommend buying.
If you have a short-term time horizon, Murphy thinks history sides with the bulls. “The last time shares traded down to 25 they bounced back to 32 in only a week or two,” he said.
And if you have a 12-month time horizon, Murphy and Terranova think the path of least resistance is higher. Not only do both pros see significant long-term potential in areas such as mobile payment but Terranova thinks the after-hours sell-off could light a fire under CEO Mark Zuckerberg and his executives.
“Price is truth,” Terranova reminded. That is, terrible stock performance can motivate a management team.
“I believe based on stock performance and fundamentals – we’ll see a Facebook phone in next 12 months.”
On the conference call CEO Mark Zuckerberg said that mobile was a top priority at Facebook. “By the end of June, Facebook had 955 million monthly active users,” he said, “and half used Facebook on mobile devices.”
Zuckerberg also said that Facebook believes people are inherently social and its mobile strategy was a big part of the company’s mission to connect the world.
Terranova thinks the commentary is confirmation of his thesis. “The trade is long in expectationa of a FB smartphone,” he insisted. Top hedge fund manager Keith McCullough sees Facebook differently. “They talked about 29% user growth,” said McCullough, “but that’s a little deceiving. Growth is still slowing.”
McCullough, CEO of Hedgeye Risk Management, plans to watch this stock from afar until the stock proves itself, by making gains that bulls are calling for. "I made the mistake of getting bullish ahead of the IPO. I won't make that mistake again."
Trader Steve Grasso, director of institutional sales trading at Stuart Frankel, shares the skepticism. He compares Facebook to Sirius – a satellite radio provider. “I love Sirius, I use it all the time. I can’t live without it. But that doesn’t mean the stock is going anywhere.”
