10/28/2013 5:00 PM ET|
Facebook may flop after earnings
The stock can't keep up this run for much longer — and investors who are sitting on big profits may be wise to sell now rather than risk steep declines.
Facebook (FB) has doubled in just a few short months, sparked by better-than-expected second-quarter earnings in July, and is up over 170 percent in the last year.
And while it's unfashionable to badmouth this social-media stock as it approaches its next earnings report, count me among the Facebook bears.
I think that even if Facebook manages to post decent numbers this week when it reports earnings, the stock can't keep this run up for much longer — and investors who are sitting on big profits may be wise to sell now rather than risk steep declines.
Here's why I refuse to "like" Facebook stock.
Facebook's most valuable users flatlining
The biggest reason to be bearish on Facebook is that domestic and European users have flatlined. I personally expect the company to post a decline in its U.S./Canada segment this quarter, or next quarter at the very latest.
That is not going to be a pleasant headline when FB sees its first-ever drop in U.S. users after its massive growth… just look at the fireworks in Netflix (NFLX) after its subscriber drop at home as a case study.
This is disturbing for obvious reasons in regard to the saturation of these markets and how it will affect growth, but it's even more disturbing when you consider that growth in emerging markets comes with only a fraction of the revenue.
Consider these figures from Facebook's last earnings report:
- Users: 198 million, or 17.1 percent of FB total
- Revenue per User: $4.32
- Users: 272 million, or 23.5 percent of FB total
- Revenue per User: $1.87
- Users: 339 million, or 29.4 percent of FB total
- Revenue per User: $0.75
Rest of World
- Users: 346 million, or 30.0 percent of FB total
- Revenue per User: $0.63
U.S./Canada is by far the most lucrative region by geography, with Europe an obvious second.
But consider that from the first quarter to the second quarter of 2013, Facebook grew its monthly active users less than 1 percent quarter-over-quarter, and year-over-year growth was a measly 6 percent.
In its second-quarter numbers, Facebook reported that $848 million in revenue — almost half of its $1.8 billion in total revenue on the quarter — came from users in the U.S. and Canada. So even a small rollback here is going to be felt, and the lack of future upside is significant.
The situation is the same in Europe as well. Europe's monthly active users increased just 1 percent from the first quarter to the second, and a modest 10 percent over the second quarter of 2012.
The Facebook longs better be sure that this user base is going to stick, or else they are in serious trouble.
Mobile and margins amplify the problem
The bulls may contend that the problem, then, isn't growing the Western audience, but simply monetizing it better. And, oh, by the way, if you make more money off those "rest of the world" subscribers, then it won't take quite so many of them to offset lost U.S. revenue if the users do roll back.
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VIDEO ON MSN MONEY
Can someone put into 15 words or less how Facebook is going to make money in the future as the public hysteria over being on FB is quickly ramping down?
they don't have to spy, just look up the Fleecebook morons 'running' to give out their information, simply to be 'as famous as possible' sooooo pathetic! so let's summarize shall we: we've got new cars with 'black' boxes to 'spy' on your driving (oh right, that's just a few secs of info right before a crash, for ins. purposes, right) for a private car YOU BOUGHT! super! what else? IRS spying on people the regime wants to destroy, searching for their political affiliations or whatever....oh yea, smartphones that can be listened in on, new cars with Onstar type 'assistance' programs to start or switch your car off, that YOU BOUGHT, ah yes all that convenience.....and for what really? cuz you're too stupid NOT to lock yourself outta your car? cuz you need a restaurants location? or whatever....so you need some 'assistance' from some dude unlockin' your doors?? sounds cool, but it's outright frightening when you look at the big picture of things to come...
kinda frightening that anyone can just 'stop' you, switch your car off...and if you think that's not sign of things to come you're beyond stupid and clueless...how soon before the cops will have 'new car' transponder access on police cars to 'shut' you down anytime they want, how soon before 'very smart car thieves' will tap into that technology and have that info, follow you and 'shut' you off in the middle of nowhere and take your car, or kill you for it....yes, all this convenience frightening isn't it...should be!
oh yea and don't forget to get the Fakebook app for you stupid 'smart' phone so they can keep tabs on you aaaaaallllllll day, yea update your status, like anyone gives a rats azz...
facebook = myspace. soon, twitter will be the same, and something new will have come along.
face book management is scum of the earth. They run it like a militant government. Blocking me form adding friends because they determine i should not add someone.
Its a not really that great of a concept. Its on its way out. it will die.
The guy started off on shaky grounds with law suits and allegations, and it will come back to bite him in the _ ss
he is a scum bag and the site is diving in popularity.
I do not even have a real FB account any more. Just a fake one so i can go on every 1-2 months to check trends. I am in the IT industry.
its a dinosaur.
I still have a FB account but I am hardly on it anymore. I used to be on Fb multi times a day now once a week.
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