Drop the “The”. Just “Facebook”
By EidoSearch
The title of this week’s Market Call is a quote from the movie The Social Network, and from history supposedly. If you didn’t see the movie, Sean Parker is walking out of dinner with Mark Zuckerberg and famously says to drop “the” in The Facebook and just call it Facebook. Good advice, and it was the starting point of a 9 figure pay day for Sean Parker. Not bad.
Facebook went public to great ceremony on May 18th of 2012 with an offer price of $38. However, the stock was laboring around $25 a share a year later until July of this past summer when it shot all the way up to $58. It settled this past Friday at $55.44. This is certainly a stock with a lot of expectations built in, i.e it’s trading at a very high multiple and continues to be more about promise than it is about fundamentals. The bears point out that teens are moving away from Facebook to hipper apps and speculate at the impact increasing advertisements will have in driving away users. The bulls point to the dramatic increase in ad revenues, in particular mobile ads, and focus on the growth story and the massive potential revenue streams.
So, with a stock steeped in speculation, where do you turn to understand what investors are likely to do from here? How have investors reacted to similar environments historically?
We looked at Facebook’s price pattern since its IPO, and compared it to all other US Large Cap Technology stocks for the past 40 years to find the most similar instances of this investor behavior or trading pattern, and to see what happened in the next one month. In the 55 most similar historical instances, the stock was down an average of -5.79% in the next one month and -5.68 on a relative basis.
Sean might want to “drop” some of his Facebook holdings in the short term. Please see the charts below.
Happy New Year!
Price chart for Facebook (FB) since its IPO on May 18, 2012
Chart of the 55 highest correlated historical instances of this pattern in Large Cap Technology
stocks, and the average relative return of those instances in the next 1 month of -5.68%.
