The incredible tumbling Facebook
Valuation, not the expiring lock-up and not the company's earnings call, is what's really destroying this stock.
Another day, another dollar lost in Facebook (FB), and after Tuesday's close it's beginning to get a little ridiculous. But it isn't getting cheap -- not yet.
On Tuesday, Facebook was upgraded by Sanford Bernstein, and for a brief moment -- ever so brief -- it looked like the stock was going to hold.
But then, once again, it fell apart, closing Wednesday at $20.88. That's a new low for a stock that's looking more like Groupon (GRPN), almost back to its low, and Zynga (ZNGA), hitting a new low. It's looking less like LinkedIn (LNKD), which is set to report Thursday and has actually distinguished itself as an overvalued winner rather than an overvalued loser.
What's really ailing Facebook? Is it the millions upon millions of shares that insiders will be able to sell when a key lock-up expires this month? Is it that the conference call was one of the most disjointed I can recall?
No, what's destroying Facebook is its valuation, the fact that it started so high that this continual decline almost seemed inevitable, given the slowing growth rate and the shrinking multiple on the small earnings it has.
The stock's got fundamental worth, because it can make money and has almost 1 billion users. But it is still valued at $50 billion, a hefty sum, given its lack of visibility and the challenge of mobile, a challenge for which we now know it wasn't ready and which it still can't seem to get its arms around.
For all the acknowledged genius of the people behind the company, it is obvious now that they didn't see the acceleration to mobile and they don't have a plan for it. They aren't Zynga, which is imploding, but they sure as heck aren't eBay (EBAY), which is praying for a full-scale mobile revolution.
You know what's most ironic about Facebook? Other than General Motors (GM), I have neither seen nor heard of a company that says Facebook is anything other than the best way to reach out to new customers. Further, now the guy who booted Facebook from the GM advertising campaign has been booted himself. His anti-Facebook cockiness endeared him to no one but the shorts.
Pepsico (PEP) said Tuesday that Facebook is a terrific way to interact with consumers. Buffalo Wild Wings (BWLD) and Domino's (DPZ) say the same thing. The numbers from Electronic Arts (EA), out late Tuesday night, show an impressive uptake for Battlefield 3, which was mentioned on the Facebook conference call as a successful campaign.
Yet somehow, with all of this good press, and with all of these companies allegedly loving Facebook, it doesn't seem to translate into positive earnings momentum.
How will Facebook bottom? I think it will do so like a lot of other stocks in free fall: You need downgrades, estimate cuts, an end of the affection and insiders declining to sell because the stock's too low. In fact, insider buys could play a significant role in stemming the decline, particularly if they are executed by the same folks we think will sell the soon-to-be-unlocked shares.
That's the bottoming process of any fallen angel, including the few surviving Internet stars of yesteryear.
Otherwise, the only thing that I think will keep Facebook from falling more Wednesday is, alas, the closing bell.
Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and is long EBAY.
More from TheStreet.com
MORE ON MSN MONEY
Mark Z is a D BAG. Look at how he screwed his friends. Facebook is for needy chicks, and guys who can't get any chicks.
I mean really...who cares that you just ran 3 miles and you feel GREAT!?!
How does Zuckerberg become person of the year?
The media is a joke anymore. Its all nonsense.
I was on facebook briefly, the whole thing is weird, plus
this Zuckerberg dude is a weasel. None of your info is safe.
Like a previous poster said, i dont care if you ran
3 miles and feel great. People have lost touch with reality.
facebook is for losers to communicate with other losers..........cramer should post on facebook
instead of here
I've always looked at FB as on big billboard.
I only use mobile, and see no ads.
Looks like it will soon go the way of MySpace.
It is not called Fail-book for nothing.
How a company that makes money by selling private information to the highest bidder got its way onto the stock market is beyond my insanity.
To the investors of Facebook, I must ask: How does it feel to be a Sucker-berg?
puhleeeez where did people ever get the idea that facebook had any value at all? there are no wharehouses full of inventory, no office buildings full of highly educated and well paid personell, no factories, no product......NOTHING....ZERO....
....nothing is ever worth "something" if there is NOTHING there!! it is all smoke and mirrors and could easily disappear overnight into the ether.....
Gee- and I thought you said that FB was going to be the savior of tech and the spark that was going to ignite the next big market rally just before its IPO.
You moron-do you think we all have dementia.
You must-I think I will find a pharmaceutical company and BUY BUY BUY.
Your stupid advice is going to make all SICK-SICK-SICK.
What do you expect? The IPO valued Facebook at a P/E of 47! That's insanely overpriced when the indices usually trade at around 15x earnings.
I tend to buy companies with a P/E in the single digits (blue chips like the oil majors and miners), unless they're absolutely rock solid companies like McDonald's and the like.
Cramer is such a HACK! Before the FB IPO all he could say was that he wanted you to be in on it. Hell he even went on to write a lovely comparison between BRK and FB, and decided he was smarter then Warren Buffett and offered his opinion on what he should do with BRK. A guy with negative returns for the past 10yrs vs a guy with a 100% return over the past 10yrs. That's a 10% return year over year and they don't even pay dividends. Then after the FB IPO flop all he could do was cry about how the "little man" got screwed over by wallstreet for the next two weeks. Now he has the nerve to talk about FB valuation ( this was after he did all his homework pre IPO) as the reason for the stock decline. If you would have bought shares of BRK on the day FB went public you'd be up 6%, or you could have went went Cramers costly ($700 news letter) advice and be down 45%. This guy is POISON to your wallet!
Copyright © 2013 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
Start investing in technology companies with help from financial writers and experts who know the industry best. Learn what to look for in a technology company to make the right investment decisions.
The Internet giant purchased the startup -- and, perhaps as importantly, its personnel -- from DreamWorks Animation in CEO Marissa Mayer's latest 'acquire-hire' move.
VIDEO ON MSN MONEY