Facebook's beauty in eye of beholder

The bears see a company that's getting little out of its rampant spending; the bulls see the next Amazon.

By Jim Cramer Feb 1, 2013 10:11AM

Fthestreet logoacebook's (FB) great. Facebook's horrible. Facebook's cheap. Facebook's expensive. Facebook's growing like a weed. Facebook's growth is already slowing.

 

Which is true? How could there really be such extremes in sentiment here? Believe me when I say I am only hearing extremes, as there seems to be no middle ground at all with this stock.

 

The answer? It's all in the eye of the beholder. People are seeing what they want to see in Facebook.


Let me give you the bear case, which puts you in the head of the sellers. Then I'll give you the bull case, which allows you to understand it from the perspective of the buyers. It's the only way, frankly, to explain the stock's wild ping-pong game: First it'll hang in, even after a huge rally, then it'll give up the ghost before it settles in where it was a fortnight ago -- before the big price spike.

 

The bears -- including lots of analysts who were bullish going into the quarter and subsequently downgraded the stock Thursday morning -- are seizing on how the company is spending like a drunken sailor and may not have all that much to show for it. These investors want results now. They don't want to hear Mark Zuckerberg say, "We aren't operating to maximize our profit this year. We're doing what we think will build the best service and business over the long term."

 

Money and computer Angel Muniz JupiterimagesThat's the kiss of death for all of the upside-surprise folks out there, the ones who figured Facebook had hit the magic formula for mobile and would show an explosive revenue and profit number. They aren't satisfied with the $0.17 vs. the $0.15 earnings-per-share number. They needed something like $0.20 to $0.25 in order to stay in the stock, or cover their shorts, or upgrade from "buy" to "super de-duper buy."

 

It's ironic that the bulls look at the same exact statement from Zuckerberg and love what they see. Put simply, they see the next Amazon (AMZN). They see a company with such a huge growth path that the smartest thing the company can do is to spend as much as possible, thus getting advertisers to spend fortunes trying to reach their targets among the more than 1 billion users of this product.


The bulls are thinking not about earnings this year, which they don't care about in the least, but to the outyears -- say, 2015 -- when the spending will begin to pay off. They are patient, as they had been with Amazon, which became one of the great performers of all time simply because its visionary founder and CEO, Jeff Bezos, never wavered in having a long-term vision. In fact, these bulls would fear for Facebook if it weren't investing. That would have meant the hyper-growth phase is already over, and they would have been stuck with another Intel (INTC) or Microsoft (MSFT) -- played-out stocks that just generate a lot of cash but muster little growth. (Microsoft owns and publishes Top Stocks, an MSN Money site.)

Where do I come out? I understand both sides. I get that Facebook's spending could be very meaningful. However, I thought the company would have made more money already. I fear that, as good as mobile is for Facebook, like everyone else, it might not be good enough to offset declines in desktop advertising revenue.

In sum, the bears think the company is being short-term profligate. The bulls think that the company is being long-term greedy.

 

Me? I think ultimately the bulls have more firepower than the bears, and that the stock can go higher. It's just that it has come up so far, so fast, that the pace will now be labored.

 

In the end, I think there are a ton of stocks out there that are much better than Facebook, and let's just leave it at that.

 

Cramer's face 

 

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 has no positions in stocks mentioned.

 

 

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15Comments
Feb 1, 2013 11:39AM
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I said back in Sept it would hit 14,000 by Christmas then drop in Jan.  My timing has been off, the ride bumpy and uncertain, but I have enjoyed the eventual gains as I didn't panic and hung in there.  MIght take some profits now and reassess after.
Feb 1, 2013 11:34AM
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yes retog - nice day of the green arrow UP!
Feb 1, 2013 11:11AM
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as an outsider watching, FB is flat.  opened at 30ish.  dropped.  struggled to reach 30's again. 

 

in the end it's a single page web system.  no network of options to see or visit from a viewer (or advertizer) point of view like google-yahoo-even AOL. 

 

it's a fad.  go buy some myspace next if you're into it

Feb 1, 2013 11:20AM
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This is a sucker's rally go ahead and buy into it !!     To the (TBTF)= DIE BANK OF AMERICA DIE  !!
Feb 1, 2013 11:20AM
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LOOKS LIKE a great day.....And about 135 up....That's what I call an "Un-" usual Friday...

 

*****edited**** for "Un"....

Feb 1, 2013 10:46AM
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Is Facebook (FB).....Really worth writing about, when the DOW is up 80-90 points !!...Really?
Feb 1, 2013 11:55AM
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Facebook is a funny site, almost everyone my age that I know uses it, but will they in  2 years????  Right now I would say yes as I can't see something else taking it's place.  A new site would have to do something very new and innovative to make people put in the effort of setting up a new account, new friends or what ever a new page might call them.  As far as a site that wants to clone FB I don't see it being competitive unless FB really does something to chase away its users.  I wouldn't invest in it, if I can't see a clear path to profits for it I won't touch it.  I could be wrong but better to miss the ride up then to be on a sinking ship.
Feb 1, 2013 10:35AM
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Short trap. For all those on margin good luck.  We are now back to normal.  All the old games never went away.  Hehe people never change.
Feb 1, 2013 11:22AM
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Sucker's run....Who cares?? You don't BUY into it.....You SELL with it...!!
Feb 1, 2013 5:46PM
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One of the problems of a social network site is that all the subscribers can monitor the traffic at all times.  I have several friends that just do not use FB although subscribers.  I find less and less posting from people who used to update all the time.  I think most all apps and social networks usually wind down, people just get bored or find social networks meaningless.  On the other hand FB has a lot of money  so who knows.
Feb 1, 2013 11:32AM
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Yeah, forgot to mention the the 14K...Breakthrough..!!

 

But I talked about that a few weeks back....A nice day in the neighborhood...

Feb 1, 2013 12:31PM
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FB is toast! There is a new game without the concerns over FB censorship.
Over 50,000 members and it's not even on line yet.
Conservatives Launch New Social Network to Escape Facebook ‘Censorship’ — Will You Join?
Fed up with the threat of “censorship” on Facebook, a group of a conservatives are launching their own social network .

theBlaze.com

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