For Facebook, It's All in the Eye of the Beholder

 | Jan 31, 2013 | 11:41 AM EST  | Comments
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Facebook's (FB) great. Facebook's horrible. Facebook's cheap. Facebook's expensive. Facebook's growing like a weed. Facebook's growth is already slowing.

Which is true? How could there really be such extremes in sentiment here? Believe me when I say I am only hearing extremes, as there seems to be no middle ground at all with this stock.

The answer? It's all in the eye of the beholder. People are seeing what they want to see in Facebook.

Let me give you the bear case, which puts you in the head of the sellers. Then I'll give you the bull case, which allows you to understand it from the perspective of the buyers. It's the only way, frankly, to explain the stock's wild ping-pong game: First it'll hang in, even after a huge rally, then it'll give up the ghost before it settles in where it was a fortnight ago -- before the big price spike.

The bears -- including lots of analysts who were bullish going into the quarter and subsequently downgraded the stock Thursday morning -- are seizing on how the company is spending like a drunken sailor and may not have all that much to show for it. These investors want results now. They don't want to hear Mark Zuckerberg say, "We aren't operating to maximize our profit this year. We're doing what we think will build the best service and business over the long term."

That's the kiss of death for all of the upside-surprise folks out there, the ones who figured Facebook had hit the magic formula for mobile and would show an explosive revenue and profit number. They aren't satisfied with the $0.17 vs. the $0.15 earnings-per-share number. They needed something like $0.20 to $0.25 in order to stay in the stock, or cover their shorts, or upgrade from Buy to Super De-Duper Buy.

It's ironic that the bulls look at the same exact statement from Zuckerberg and love what they see. Put simply, they see the next Amazon (AMZN). They see a company with such a huge growth path that the smartest thing the company can do is to spend as much as possible, thus getting advertisers to spend fortunes trying to reach their targets among the more than 1 billion users of this product.

The bulls are thinking not about earnings this year, which they don't care about in the least, but to the outyears -- say, 2015 -- when the spending will begin to pay off. They are patient, as they had been with Amazon, which became one of the great performers of all time simply because its visionary founder and CEO, Jeff Bezos, never wavered in having a long-term vision. In fact, these bulls would fear for Facebook if it weren't investing. That would have meant the hyper-growth phase is already over, and they would have been stuck with another Intel (INTC) or Microsoft (MSFT) -- played-out stocks that just generate a lot of cash but muster little growth.

Where do I come out? I understand both sides. I get that Facebook's spending could be very meaningful. However, I thought the company would have made more money already. I fear that, as good as mobile is for Facebook, like everyone else, it might not be good enough to offset declines in desktop advertising revenue.

In sum, the bears think the company is being short-term profligate. The bulls think that the company is being long-term greedy.

Me? I think ultimately the bulls have more firepower than the bears, and that the stock can go higher. It's just that it has come up so far, so fast, that the pace will now be labored.

In the end, I think there are a ton of stocks out there that are much better than Facebook, and let's just leave it at that.

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