The incredible tumbling Facebook

Valuation, not the expiring lock-up and not the company's earnings call, is what's really destroying this stock.

By Jim Cramer Aug 1, 2012 9:39AM

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.

 

 

 

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52Comments
Aug 1, 2012 9:54AM
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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!?! 

Aug 1, 2012 2:47PM
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Cramer was the one who said if you can buy facebook at its IPO price it would be a great idea.  Now he is claiming it was inevitable that it would fall.  What the hell is wrong with this guy???
Aug 1, 2012 1:57PM
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 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.

 

 

Aug 1, 2012 12:28PM
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facebook is for losers to communicate with other losers..........cramer should post on facebook

instead of here

 

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If you were a 'Suckerberg' believer, you fking deserve it ....!   Facebook is a scam and Zuckerberg will crash and burn like MySpace.
Aug 1, 2012 4:19PM
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I have come to believe that all the so called " investment experts", in reality  know as much as we do. They guess and especulate most of the time with other people's money.. Sometimes, like all of us, they are lucky. As for FB, in my opinion, it is the biggest fraud of the century. It makes money at the expenses of idiots who love to tell the world who they met at the Metro, that they had pizza for lunch and how many times they went to the bathroom afterwards.
Aug 1, 2012 12:36PM
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Maybe I am dead wrong however unless a company makes something, services something, improves an existing something what can it be worth? Exxon/Mobil, General Electric, Microsoft, Apple, McDonald's, Coca Cola, Ford Motor Company, Proctor and Gamble etc. These companies are in competition with others in the same industries and ride the ups and downs of economic ups and downs to stay in business. Simply put, they all offer products that sell over and over and make continual profits. Sometimes big profit, sometimes less profits. They stay in business because of the tangible that they offer. I question if facebook falls into the category of these companies. I can not predict the future however I am glad I did not invest in facebook.
Aug 1, 2012 11:35AM
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A billion users?  I think not.  Even when Zuckerberg increased the number of users by 50,000 on last weeks press announcement he admitted that over 50% of the users have not visited their accounts for over 30 days.  This is like counting noncollectable receivables as assets.  In fact just keeping 500,000 deadbeat users on the books is a liability unless your going to violate your privacy agreements and release the personal information (which facebook is doing with bugs like facebook connect and facebook social).  Go back to basics and facebook is worth $6.50 a share or $13.00 with a lot of hype.  Maybe with the mystical mobile apps we can justify the $13.  My puts are in and there is a lot more money to be made on facebook.  On the short side.
Aug 1, 2012 2:30PM
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People are realizing that invisible goods that you buy or invest in with real money are just that - invisible!



Aug 1, 2012 1:29PM
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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.

Aug 1, 2012 4:18PM
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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?

Aug 1, 2012 4:12PM
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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.....

Aug 1, 2012 1:06PM
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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.

Aug 1, 2012 4:10PM
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Considering that it should not have been anymore then a penney stock to begin with, it still has a long way to go down. 
Aug 1, 2012 10:15AM
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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.

Aug 1, 2012 5:06PM
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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!

Aug 1, 2012 3:38PM
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OK, I will admit that I bought puts in FB the 2nd day I could.  (I missed by a day due to my stupidity!  LOL)  While I sold my June and July contracts (strike prices from 29 to 25), I am still holding September 24 puts.  I could sell them today and do very well... but I think FB will likely drop to $15... and $8 to $12 by September is not unrealistic.  The recent news that something like 80% of all FB advertising revenue might be generate by FB-owned bots... and it's only time before the FTC starts looking for securities fraud/manipulation.  $5 to $7 by December will not surprise me!  The big question is why did I see this mess but Cramer and the "experts" didn't?  Greed perhaps?
Aug 1, 2012 3:30PM
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Facebook was trying to do as the oil companies and make it look as if the stock is worth more than it is
Aug 1, 2012 11:44AM
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  "Mark Zuckerberg" - his real name is Jacob Michael Greenberg- and the mythology of Facebook are totally fraudulent.  Greenberg didn't create Facebook; he was given Facebook because he's the great grandson of John D. Rockefeller Sr.  I predicted FB would drop this low while all the "zuckers" out there were paying 42 dollars a share for the FB IPO. It's not like people didn't warn them about this fraud "Mark Zuckerberg".   CNBC and Bobo, however, certainly didn't warn anyone.  They were the biggest cheerleaders of FB - and CNBC still is. 
Aug 1, 2012 12:42PM
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This article is horse$hit. Nobody could tell you one add they've ever seen on FB let alone influenced to buy anything.
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