With shares of Facebook (NASDAQ:FB) now trading at around $24, is the social network a BUY, a WAIT and SEE, or a STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for the Stock’s Movement
On Tuesday, Interpublic Group said it had sold its remaining investment in Facebook for $95 million in cash. Interpublic, which paid less than $5 million for the stake in 2006, was one of the social network’s early investors who are now beginning to cash out on their holdings as the company’s lockup expirations continue. Facebook released 804 million shares last week in what was the biggest such event since the May IPO, and the final two expirations, scheduled for December and May, will release about 200 million shares. However, unlike the previous two times, the latest expiration saw shares of the social network gaining as much as 13 percent instead of ceding to gravity.
That led to the hope that Facebook may finally be ready to move on from the negative emotion that has surrounded its stock in the months following the IPO and start being judged purely on present performance and future potential. “The lockups have been talked about so much, for months and months,” Brian Overby, senior options analyst at online brokerage TradeKing, told The Wall Street Journal. “Just because the stock is being unlocked doesn’t mean everyone is going to sell.”
Chief executive Mark Zuckerberg, for one, has tried to reaffirm investor faith by declaring he will not sell his holdings for a year. And despite losing almost $40 billion in value since the IPO, the company’s recent measures to improve it advertising models have worked. Facebook has introduced seven advertisement features created for smartphones and tablets since March. In the most recent quarter, ad prices increased 7 percent and the number of ads delivered increased 27 percent.
H = High Quality Pipeline
Facebook’s mobile growth was one of the most questionable aspects of the company’s future in the months after it went public. While initial projections were not positive, especially considering that mobile adoption by the social network’s members grew more rapidly than new user-based or advertising products, the company has since made big strides. It released updates to its Apple (NASDAQ:AAPL) iOS app, making it much faster and easier to use than before. Also, its famous acquisition of photo-sharing app Instagram has finally begun seeing closer integration with Facebook. Earlier this month, Instagram unveiled new profile pages that look a lot like Facebook Timelines. The company also launched a gifts service for its users and a Facebook Exchange for advertisers to help them tailor ads.