Market misreading some great earnings

Facebook and Starbucks are terrific companies. While their stocks may be expensive, they are better than just about everyone else at what they do.

By Jim Cramer Oct 31, 2013 9:45AM

A Starbucks Corp., sign is displayed outside a coffee shop in London, U.K. / Chris Ratcliffe/Bloomberg via Getty ImagesPerhaps people are just asking for too much. That concept was pretty stark last night onTheStreet.com logo the two most important conference calls: Starbucks (SBUX) and Facebook (FB).

 

Facebook delivered a monster quarter, but it seemed that all anyone could focus on was a comment about how younger teens have decreased usage and how the company does not expect to significantly increase ads as a percentage of news feeds. The result? We got a real dead-horse beating about the peaking of Facebook and, even though ad revenue grew 60 percent and mobile ads are now 49 percent of the business and the company generated $1.8 billion in ad sales, you left the call with a sense that Facebook's best times are behind it.

 

Of course that's fatuous logic in that revenues for video and Instagram haven't even hit yet and the company is just scratching the surface of the ad market. Given that digital media now represents a much bigger part of viewing than television, specifically 5.25 hours a day for Internet vs. 4.5 hours for TV and the fact that Facebook has one in eight minutes of that time of desktop and one in five minutes on mobile, that's a lot of time to monetize.

 

But the analysts saw it differently, contending, at least from the questions, that the company has a self-imposed limit of how much advertising it can offer without spoiling the user experience, with an undertone that younger teenagers must already be turned off by the ads.

 

The Q&A turned the biggest upside surprise of the season into a downer and it shouldn't have been. There's no slowing here that I can find, but I felt very lonely with that viewpoint after listening to the interplay.

 

The Starbucks call also had a denouement feel about it. There was a sense among the analysts that Starbucks can't possibly exceed what it's done already. At one point it got so difficult that Howard Schultz mentioned that the "tension between us and you regarding comparable growth guidance" had gotten out of hand and it would be irresponsible to say that Starbucks will beat the 8 percent comps in the Americas and 7 percent overall.

 

Lost in the shuffle were the fabulous packaged-goods initiatives, the Teavana rollout and the day-part expansion. Instead the mob wanted facts and figures about how the Boulange food rollout was impacting comparable-store sales and Starbucks management just wouldn't go there. It didn't seem to matter to the analysts one bit that Starbucks may actually be using its stores as launching pads for supermarket aisle takeaway and for lunch and dinner, a true monetization of bricks and mortar.

 

Frankly, I found the Q&A here of the total nit-pick variety, but I respect the fact that most of these analysts are trying to build models and they are flummoxed about how to interpret all of these initiatives within the confines of the spreadsheet, a common problem when it comes to this chain. How do you value loyalty? How do you put a price tag on affinity cards and mobile? They don't know how to do it, so the credit where credit should be isn't there. Instead, the focus is on kinks in new initiatives even though Howard took pains to point out that the Panera problem --slow throughput on hard-to-make specials -- and new products isn't an issue for Starbucks.

 

The commonality of both conference calls? Managements are trying to explain how good business is and analysts were crafting possible theses about how business reached its zenith and it is all downhill from here. Hence the tentative nature of after-hours trading.


To me, we're getting a chance to buy companies at the top of their games for less than we might otherwise because of these updates, making the stocks more of a value. That's necessary because of the heightened valuations and the run-ups into the quarters.

 

Bottom line: These companies are terrific, and while their stocks may be expensive, they are better than just about everyone else at what they do. To bail from best of breed this easily seems a little glib and a lot fatuous, and I'm just not going there.


Jim Cramer's headshot


Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long FB.



 

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170Comments
Oct 31, 2013 9:54AM
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ALL THIS FUSS OVER ADS NO ONE CLICKS ON? 

 

note the typical facebook page loads so slow that any extra clicks you might have done while the page loads gets accidently clicked onto someone's ad.  THEY pay for that mistake.  and i simply hit the backbutton to where i wanted to go. 

 

like ads on a bus or train, do i really care?  no!  do i act on these ads?  no! 

 

ads on bill boards off highways.  ads on radio, TV, cable TV, etc.  we're done with ads.  just because there is a population, people place ads.  and we're so exposed to ads we actually no longer see them.  they are tuned out. 

Oct 31, 2013 2:29PM
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Brent
Did you ever see the movie ""FAIL SAFE"" ?
 Walter Mathew  delivered one of the most eloquent lines  that held true  on 9/11.
 after the president decided to drop an atomic bomb on New York
 He said "' we must go in immediately for recovery effort, not for the dead, but for the financial records, our economy depends on it.""

 It is probably little-known fact what financial records were actually destroyed in the trade centers.
 I can tell you this firsthand, Marsh+ McLennans  records were held on the 49th floor of 2 WTC. Needless to say everything was destroyed. That is only one company. If not  for partial backup from Lloyd's of London of  who they are partners, the company would not be in existence one day later.
 And I hate to say it this way but it is a truth, 9/11 did more damage to our economy than the government led on too
Oct 31, 2013 10:58AM
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Brent you have that **** backwards.
When your young it is recommended you get aggressive as you have your entire life to recover losses if things go south.  I kept buying through the collapse in 2008/2009 as I new I wasn't going to touch that money for 35+ years.  When your old you don't have that time, you need to preserve your principle and many do not have a pension to fall back on.  If your retiring in 5 years there is no guarantee the market will recover from a large drop.
Oct 31, 2013 3:46PM
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BRENT 

I ALSO HEARD THAT ANNA-NICOLE ""MARRIED FOR LOVE""


Oct 31, 2013 2:47PM
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Brent 

Prove that statement !    Before the fact !

 Bush WH had lots of warnings about terrorists

were going to flight school to plan 9-11 attacks


Oct 31, 2013 3:44PM
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Do you talk tough at the VFW Beav and call yourself Sgt Frank?.

 

You know those ole boys will kick your azz when they find out you're a liar.

Oct 31, 2013 12:31PM
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Jim says... Facebook and Starbucks are misread as investments. Jim... Facebook is attributed to be the Number One CAUSE of divorces today... highest level in our history, now exceeding 70%. Generation Starbucks can't afford life but they can afford $4 coffee or tea? Bet not. 
If your Ivy League brains were anywhere north of your ****, you'd notice that all the commercial exploitation funded by QE is falling away, leaving death and cancer in it's wake. $100 BILLION now in bank fines... $700 TRILLION in derivatives. 340,000 new unemployment filings-- down 10,000. A QUALITY analyst tells that the figure is not "better" it is consistent with stagnation and foretells that Bernanke or his failure successor- Yellen MUST stop driving us to ruin or face extinction. Dumpster divers won't be the first to evaporate seconds after QE stops but Facebook, Amazon, Google, Apple, Linked-In, Twitter and every other virtual nothing-- will. Oh, and Starbucks too. How sensible was a business model that put out massive tangible overhead but not a plan to temper it back as sales slacked? Brazil just reported a record coffee crop and cooperative prices have to drop. If I can brew a mug of Estate-grade for a quarter, and prices are heading south... what is Starbucks and all the other coffee-reliant platforms heading for-- bankruptcy court? 
Oct 31, 2013 11:43AM
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Why dose everyone believe that tapering will hurt the stock market. Company's are doing fine, their making good profits. If the fed stops printing money and maintains real inflation between a deflationary 1% and 0% inflation, interest rates will stay low. Tapering should actually be good for the stock market. Tapering may cause stock to decline for a while. However, that will be the time to buy stocks.
Oct 31, 2013 2:59PM
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CL:WHY do I always get the feeling that you don`t listen anyway?Are you too insecure too

admit you could be wrong?

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What???

 

Cramer with FB at like 230 P/E ratio it's way way way over priced the price should come down by a factor of 23 !!!!!!!!!!

 

Facebook had horrible earnings for it's price

 

Sales* 6.12 Bil
Income* 557.00 Mil
Sales Growth* +37.10%
Income Growth* -94.70%
Net Profit Margin 9.06%
Debt/Equity Ratio 0.18
Beta NA
EPS 0.22
Forward P/E 54.70
P/E 225.48
Market Cap 120.74 Bil
Shares Outstanding 2.44 Bil
Oct 31, 2013 4:32PM
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Dang.......... That boy left a little puddle of "black pudding" when he left.

Oct 31, 2013 2:41PM
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Spying for Bloomberg are you Rome is Still Crying.
Oct 31, 2013 3:10PM
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CL: Al Gore was a photographer in Vietnam.He wasn`t a true soldier but he still could have been killed.

How many millioaires can you name that served there?GWB didn`t.The few people who saw him

in uniform said they saw him reading magazines.Tough duty !

Oct 31, 2013 10:30AM
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Give it a rest Bobo --- I bet a buddy $1k FB would open lower the day after earning so went to bed last night thinking I had lost and woke up $1k richer !!!

What you and the other cheerleaders (ugh) don't realize is that young people are turning away in droves from FB. 

As SteveG states NOBODY clicks on the ads and after all the hoopla from the ad agencies about getting on there - everyone realises the ROI is nada !!

Keep on pumping though as I will be buying puts on FB soon !!
Oct 31, 2013 11:54AM
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DLH: I do watch Fox news.For laughs.I like to see grown men cry and bellyach.They always

find a way to blame Obama.It`s supposed to be a bad winter.I`m sure in their meetings they`ll

find a way to blame Obama.Their jealousy is great for laughs.

Oct 31, 2013 3:40PM
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Mr Cramer, I was wrong, posters to your site are not trying to be constructive or on subject .... it has degenerated into a ribald, bigoted and cheap chat room ... of which I want no part.  
Oct 31, 2013 3:23PM
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Barry, You came to this site to push a hate agenda.Like Rush Limbough who won`t endorce

a candidate for fear of being on the losing side,we never hear solutions from either of you.

It`s easy to throw rocks.Rush just plans his show by going the opposite way of whatever Obama

says and the righties fall hook,line and sinker for that.

Oct 31, 2013 12:25PM
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When it comes to crooked politicans I would say Cook County has produced a bumper crop... JMHO of course.
Oct 31, 2013 4:31PM
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BRENT

CL:I`ve heard several people on TV mentioning AL Gore`s warning.Keep believing the right

wing talking point


WHO ???

Oct 31, 2013 2:50PM
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CL:Al Gore notified the WH and was ignored.Say what you will about Gore being too liberal

on some issues and too conservative on others but he`s a Vietnam vet that loves this country.

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