Stock: Facebook (FB)
Facebook’s IPO came out on May 17th
and raised the largest amount, $16 billion, ever for a tech company. I still remember
everyone was talking about investing in Facebook shares prior to the IPO and
the proposed price range was raised from $28 - $35 to $34 - $38. Disappointingly,
the stock was only able to trade above $38 on the first day and never traded
anywhere close to the proposed price range since then.
I think Facebook has never been a good
company to invest in because the stock price is overly inflated (P/E ratio of
51.5 compares to Google’s P/E ratio of 18.7) and the company doesn’t have a
solid revenue stream to maintain consistence growth. Facebook just had its’
earnings report came out on Thursday, which Facebook’s 2nd quarter reported
a net loss of $157 million, or a loss of $0.08 per share, using the GAAP
accounting method. The operating margin, under GAAP accounting method, plunged
to a loss of 63% compares to a gain of 45% one year earlier, indicating a huge surge
in operating expenses. More details of the earnings report can be found at: http://www.prnewswire.com/news-releases/facebook-reports-second-quarter-2012-results-163915536.html
Facebook undoubtedly has a huge population of
users, which could make up the 3rd largest country in the world, but
having a large amount of users doesn’t mean the company can make money from
every single one of them. Facebook’s revenue generates from 2 main sources, advertisements
and users paid digital items such as games made by Zynga. Most of the revenue
comes from the ads side of the business however, according to Bloomberg, the
company’s sales growth wasn’t able to keep pace with user expansion. Amid
rising competition from Twitter and Google in the advertising on mobile
devices, some analysts expect mobile advertising could boost the company’s
revenue in the future and Mr. Zuckerberg also said that mobile ads is the key
area of focus for the company’s growth over the next several years. There is a
potential for Facebook to grow in this area, unless you have a lot of faith
with the company, otherwise I’d wait until the company starts to generate consistent
result before I decide to put money in it.
Despite the fact that Facebook may not be a
good company to invest in, it is a great day trading stock considering its intra-day
moves. Here are some technical levels for the stock:
(Daily)
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So far the daily chart is full
of bearish signal and downward trend. The only bullish pattern in Facebook’s chart
is the rounding bottom pattern in early June, which immediately led to a bearish
double tops pattern and indicated the underlying weakness of the stock.
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Facebook shares broke down on
the earnings report during Thursday’s post-market hour. The stock ended up gapping
down from $26.73 to $23.19 and made a new all-time low @ $22.28 on the next
trading day. Given these conditions, I don’t think it is a good idea to long the
stock because you’ll never know when and where the stock is going to turn
around, there is no reason for anyone to catch a falling knife.
-
Facebook is not a good stock
for long term investment but one can still be able to catch a $2 - $3 dollar
move on an intra-day basis. If the stock moves back into the downward channel
and breaks above the gap bottom level @ $24.54, one can expect a short term up move
that will fill the gap by reaching the gap top level @ $26.73. The up move can
go as high as the upper bound of the downward channel before the stock
encounters heavier resistance.
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Even if FB breakout of the
downward channel to the upside, it still has quite a bit of overhead
resistances. The stock formed 2 double tops patterns, one @ $33.44 while the
other @ $29.51. The 1st double tops resistance @ $33.44 is the
highest the stock reached since the third day of IPO, so I mark it as a major
resistance level. If the stock eventually breaks above the major resistance
level @ $33.44, I expect the stock price to go above $38 and higher. The stock previously
found support @ $30.51 and now becomes a resistance level. If the stock climbs
above the 2nd resistance level @ $30.51, it should trade within the price
range between $30.51 and $33.44 until it forms a directional signal again.
(Hourly)
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On last Friday, Facebook’s
price made a low @ $22.25 and gradually climbed back until it found resistance
at the downward trend line. Friday’s move looks like the stock is making a
1-2-3 pattern up move while it ended in the 2nd leg move on Friday’s
close. I'm expecting a 3rd leg up on Monday to complete the 1-2-3 pattern,
taking the stock back into the downward channel and perhaps filling the gap @
$26.73.
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If Facebook’s shares price is
not able to go above Friday’s high @ $24.54, the stock may drop back to the low
@ $22.25 and see whether the stock forms a double bottom. A double bottom
pattern can help the stock to pop back to the downward channel. If the stock
goes lower instead of forming a double bottom, then let’s hope Mr. Zuckerberg
will not charge Facebook users a fee to access the social network site.
I hope this post offers you some
insight, thank you for reading and please feel free to give me some
feedback.
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