by Michael Tarsala
There is no particular stock price that makes Facebook attractive.
Rather, it will be proof that the company can sustain strong double-digit revenue growth, says Barry Randall., manager of the Crabtree Technology investment model. The story -- and perhaps the stock trajectory -- could change meaningfully once that happens, he says.
"I am not a Facebook (FB) hater," Randall says. "I do not think that Facebook is a MySpace-like fad. I see it as a substantive company with a real working business model."
It's a real company with more than 900 million users, real profits, and an emerging growth strategy.
His concern is whether the 32% revenue growth the company reported in the second quarter can be consistently repeated.
Until that happens, he says that valuation doubts about the company remain -- especially with Facebook still trading at a premium to rival Google (GOOG) -- a company that already has proven it can put up consistent double-digit growth.
This week, Facebook touched a new all-time low below $20 a share, as 271 million shares owned by insiders became available for sale as of August 16. The worry is that the supply of shares on the open market could as much as double, making shares owned by existing holders worth even less than they are today.
A further slide remains a popular bet with some options traders. According to Yahoo Finance data, a put at the $15 strike carries among the heaviest open interest -- a measure of the number of active contracts -- of any Facebook option for December expiration.
Randall acknowledges that Facebook could drop even lower than $15. If that were to happen, though, he says it would be driven by insider selling and the stock's high multiple.
It wouldn't be on fears of a broken business model, he says.
It's true, Facebook's user growth is slowing down, and it has yet to meaningfully boost its revenue per-user metrics.
That said, one of the main drivers of future business is expected to be its mobile strategy. Facebook plans to monetize word-of-mouth recommendations from individuals that Facebook users know and trust, and let people share those recommendations on their mobile phones.
Facebook recently made a video that explains what it is and how it works (and how it's not about friends selling you out, or peddling merchandise to you). CEO Mark Zuckerberg and COO Sheryl Sandberg discussed it at length on Facebook's earnings conference call.
Already, it's a $1 millon-a-day run rate business for Facebook.
So maybe Facebook is a good company, and arguably off to an OK start. Perhaps it is mainly suffering from a very poorly priced IPO.
"People are going to have to recalibrate their expectations for the business model," Randall says. In the meantime, it really is a good and healthy company."
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