Opportunities Are Limitless
Now, there are many opportunities in front of Facebook Inc (NASDAQ:FB) in order for the company to grow its earnings without needing to increase the number of users. The company has already been experimenting with some of these opportunities. For example, Facebook started to charge people $1 to send a message to inbox of a user who they are not friends with. This may or may not work in the long run, but at least the company is trying to find creative ways to monetize its huge user base. In the future, I wouldn’t be surprised if users are forced to watch a short advertisement every time they log in to their Facebook account. YouTube has been doing this with many videos, and it’s been working for the company so far. Facebook continues to engage its users. For example, on average, Facebook users log in to check their page 14 times a day. In order for Facebook to lose popularity, a better alternative would have to come up; however, it hasn’t happened in the last few years. Some alternatives to Facebook, such as Twitter and Instagram, are fully integrated with Facebook, which makes it less likely that the company’s popularity will go down anytime soon.
Conclusion
But all this doesn’t answer one main question. Is Facebook Inc (NASDAQ:FB) bottoming in the short term? Currently, 32 million of the company’s shares are shorted, which is more than the 20 million shorted shares in the beginning of the year; however, much less than the 95 million shares that were shorted back in November. While most short sellers know that Facebook is overvalued as it is, they are also afraid that the company’s share price can shoot up significantly on short notice. Currently, institutional ownership of Facebook is at 34%, which is very low for a company that is highly recommended by analysts. The low rate can mean two things for the company, 1) there are a lot of potential institutional buyers for the stock if a catalyst occurs, 2) the stock will continue to have high volatility as most stocks are when their institutional ownership rate is low.
I am tempted to give Facebook Inc (NASDAQ:FB) a chance by purchasing some shares; however, if I do such a thing, I will make sure to write calls on my shares on monthly basis in order to bring my breakeven price down, and I will only hold the stock for a year or two at most, until the dust settles and the direction of the company becomes clearer. This company can be a good speculative play for younger investors who have higher tolerance for short term loss. More conservative investors can find value elsewhere.
Jacob Steinberg owns shares of Google. The Motley Fool recommends Amazon.com, eBay, Facebook, and Google. The Motley Fool owns shares of Amazon.com, eBay, Facebook, and Google.
