Facebook's stock weather forecast: Thunderstorms

Here's why shares continue to move lower.

By Wall St. Cheat Sheet May 31, 2012 2:56PM

Image: Highway through prairie (© Comstock Images/Jupiterimages)Facebook (FB) is not only a great American success story, it's also a company that attracts some serious dark clouds. In the past, these clouds took the form of lawsuits from the Winklevoss brothers and Mark Zuckerberg's co-founder Eduardo Saverin. However, as the late Biggie Smalls said, "More money, more problems."

Facebook's new dark clouds are worrisome for investors.

Our Cheat Sheet investing framework always starts with a requirement for a "C = Catalyst for a Stockʼs Movement." In the case of Facebook, the strongest catalysts on the horizon are negative. Let's take a look:

1) Federal Trade Commission inquiries into the billion-dollar Instagram deal;

2) Securities and Exchange Commission inquiries into IPO shenanigans involving Morgan Stanley (MS) and Goldman Sachs (GS);

3) Shareholder lawsuits over IPO shenanigans;

4) Slowing growth in latest earnings announcement;

5) Major problems monetizing user-base;

6) An alleged move away from core competencies into the highly risky smartphone hardware space;

7) Core gaming partner Zynga (ZNGA) is diversifying away from the Facebook platform;

8) Increasing competition from Google+ (GOOG), Path, Pinterest, and many more niche social networks.

In addition to these major issues facing the company, Facebook's stock is highly valued and currently not discounting all these negative catalysts. Am I missing other negative catalysts? If so, please let me know in the comments below.

Damien Hoffman is the Editor-in-Chief at Wall St. Cheat Sheet. As of this writing, he did not own a position in any of the aforementioned stocks.

More from Wall St Cheat Sheet

May 31, 2012 5:00PM
If the Facebook charges $5 to $10 a month per account.   A lot of people will quit the Facebook for sure.  At that time Facebook stock price will drop down to the bottom
May 31, 2012 4:51PM

Facebook is OVER.  No-one under the age of 25 even uses it anymore.  It's mostly now used by grandmothers trying to see photos of their grandkids at college.  I see a $12 price within 6 months... and by September would not surprise me.  

May 31, 2012 3:10PM

The latest move, up $1 per share in less than 30 minutes. The more step function trading I see in this stock the less I want to be in it.

I wouldn’t be surprised of Zuckerberg is buying back shares that he sold at $38.

Question: I’m just curious Mary Schapiro, how exactly does the SEC define stock price manipulation?

May 31, 2012 4:45PM

Anybody who would buy into FB is out of their mind. FB produces nothing and has no real assets to speak of.

In addition a p/e ratio of 88 to 1 is so out of line that any sane person would laugh at the idea of owning a part of the company.


May 31, 2012 4:42PM
When the CEO bails out shouldn't the investors follow?
May 31, 2012 4:10PM
GM's move away from spending on ads in Facebook calls into question of Facebook ads and its major revenue source.  Also, while at first impressive, the list of companies which were valued less than Facebook (e.g., Disney) provided a reality check.  Even if Disney failed its assets alone have value.  Other than Facebook's business projections, where is the value?
May 31, 2012 4:47PM


Another example of greed. there is no reasonto invest in Facebook. I like the site, but as a financial tool it is hollow. It makes nothing, it sell snothing and it does not offer a paid for service.

If the investors had done homework and not just tried to jump on a get rich quick scheme, they would have known this.

I do not feel sorry for one of the people that lost money.

May 31, 2012 4:35PM
How about someone get the Zuck-man back from Italy, put a clean hoodie on him, strap him into his highchair, stick his binkie in his mouth, and put him back to work?
May 31, 2012 6:39PM
From comments on an article a couple days ago:

Facebook got whacked because:

(A) It is a business platform that does not make anything.  It is based on a fad and is at the mercy of the ephemeral, rapidly changing tastes of its main target demographic.  This demographic does not click through ads or purchase the products advertised thereon---e.g. GM.  FB is like a movie set.  Peek behind the facade and see how fragile the structure propping up this company really is.

(B) The small investor has been suckered enough by Wall St and banksters.  You guys move and manipulate the markets for your own ends.  Also, we get it---we aren't permitted to profit from IPOs.  These events are hyped beyond belief by a complicit, bought and paid-for media and are typically losers for all but the insiders.

(C) Even a few of the smarter institutional funds figured it out.  How much FB did Berkshire Hathaway buy?  Zilch, nada, zero.  Buffett wouldn't touch it.  He also said he would not buy Apple or Google at current values---too risky.  Granted, this is not the business model BH is based on.  But in his comments, he also said if BH engaged in short-selling, he would not short Apple or Google.  Nothing about FB.  So, was WB implying that FB was ripe for short-selling?

Look for the stock to be trading under $15, and possibly under $10/share by the end of the year.

Also, look for the next great thing (which all the kids are already waiting for) to suck the life out of FB.  Its worth will be defined by the residual, limited shelf life value of the data it has mined from the gullible for marketing purposes.  Most kids (13-30) will tell you, "FB is over."

PS---a FB phone?  Right...as people are beginning to figure out how much private information they have been conned out of due to ever-changing, dubious privacy policies,  I'm sure they'll be all over signing up for another device that spies on them in even more innovative, devious and secretive ways.

May 31, 2012 4:57PM

Arrogance has led to a fall..  Yet again.

May 31, 2012 4:40PM
I think as people start realizing that it only has ad revenue which is very hard to understand exactly how they make money. Won't the number of people on facebook reach a saturation point. Like Cell phones. The growth now is pretty limited to people switching companies. I find that many people on facebook are getting tired of it.
May 31, 2012 4:26PM

GM's decision to pull ads should have been a clear sign of the future struggles of generating ad revenues. Google made its money primarily through BtoB ad programs, not consumer focused marketing.  The only way that I can see Facebook flourish is if ultimately its user-base is addicted to using it and willing to pay a monthly subscription fee to access it.  Good luck on that one!  The novelty is already wearing off.  83.1 price to earnings speaks volumes, too!

May 31, 2012 4:40PM
With a little more Greece it will slide even more......
May 31, 2012 6:54PM
Facebook got big because it was cool.   Its not cool anymore.
May 31, 2012 6:22PM
Anybody who losses money has nobody to blame for it.  Why would anybody invest in a company
that makes no products and gives away memberships for free.  In order for Facebook to make money, they must increase their numbers of subscribers.  The number must keep rising and rising whit out stopping.  This is not a reality.

May 31, 2012 5:57PM
Zuckerberg may be an annoying, egotistical, thieving, POS but he seems to have known when to go for the final cash in via the IPO before FB goes into total flush cycle. FB is becoming more and more irrelevant. The only reason I use it is to promote my online business to the hundreds of "friends" I have that I don't even know by posting things and hitting the "like" button which then will go viral. And guess what? FB DIDN'T MAKE A DIME!!!!!  
May 31, 2012 4:38PM
The negative part is you are still hawking the stock. This is a sales job.
May 31, 2012 5:00PM
Trying to hide his tax money at the Vatican?
May 31, 2012 6:45PM

You might also include:

Leader technologies vs. Facebook in which Facebook was found guilty on 11 of 11 counts of patent infringement.  The verdict was set aside but an appeal is pending.  The patent infringement claims stem from Facebook allegedly stealing the code for the engine that runs Facebook.  If Leader's appeal is successful the penalties could be severe, even potentially shutting down Facebook's servers.  Look into it because I have and this is what I've found.  Please correct any of this if it is wrong but either way I would like to know more about it.

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