Step up digital media. Step up digital media. Step up digital media. That's the theme of this quarter for retail -- and to ignore it is to ignore how to get customers and how to get traffic. It's mentioned over and over and over again, and I think it helps explain why the stock of Facebook (FB) may be bottoming and why Amazon (AMZN) doesn't deserve to be punished endlessly because it is part of FANG,-- Facebook, Amazon, Netflix (NFLX) and Alphabet/Google (GOOG) , (GOOGL) .
The boots on the ground dictate otherwise, whether it be Signet (SIG) or Francesca's (FRAN) -- hey don't laugh that $1 and change stock is attached to a 742-store brick and mortar chain in 48 states -- or Dave & Buster's (PLAY) last night's big disappointment.
We all know that Facebook has been one of the worst investments since peaking at $217 back on July 25. It's been beaten up endlessly, and it has run amok in a way that you rarely see happen.
It is hated.
But one thing is certain, when a chain says it has to have more of a digital presence -- and every retailer says it so far this quarter -- some of that money is going to them, not just Amazon and Alphabet.
Sure it may not be going to the more expensive unit, namely old-fashioned Facebook. Tastes changed. It got hurt.
But the money, including money that used to go to print as well as money that used to go to TV, is going to Facebook's Instagram.
I am not saying that Facebook is the only game in town. I am saying that if you want to hit influencers, if you want to get the word out, you can only do so much. You can build out your site. You can try to drive traffic to it.
But there is a miasma of sites and you need to place your ads where millennials can see them. That means you can go to Twitter -- not all that successful this quarter that I can tell -- Snap, which almost seems like it is going away -- Google, which is cloddy search now -- Amazon, which is very effective -- and Instagram.
There is simply a paucity of places to go to get the word out -- and that plays in Facebook's favor.
Why, then is the stock so heavy? Why does it trade at 19x fiscal 2019 earnings and 16x fiscal year 2020's -- despite its 20% growth rate, off 20% this year?
It can be one of three reasons, or all of them, for that matter:
- The bad publicity is driving people away faster than they can be added. This is always a possibility given all the bad things they have done to users-or at least the press says they have done and users have acted negatively.
- Mismanagement and the refusal to do anything about it. This is the bunker mentality taking over. Or, to put it mildly, what is Sheryl Sandberg still doing there?
- The advertisers are all going to Amazon as a better place to get people to see their wares.
We don't know how badly one and two are hurting them, but we do know they have lost a terrific revenue stream from selling you out and they have to spend more money to police their sites. Those are dead weight losses. We all want to know if Facebook can be trusted. But do the advertisers really care if they have better reach than any other source of advertising?
I don't think so.
And they can't all go to Amazon, because Amazon is often their biggest competitor.
My conclusion: Facebook is bottoming in a legitimate way, through a mighty buyback that is largely being ignored as a sign of strength. Now we own it for Action Alerts Plus, but haven't pushed it -- but the more I read through all of the conference calls, the more I have to conclude that Facebook is still very much in the mix of sites you would advertise with, so it might not be as bad after all.