I believe Facebook is just going through transition of valuation model in the market

2018.7.28
Facebook
Closed at $174.89 (-0.78%) Target to $160.00 (-8.50%)
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1. Are concerns over FAANG realized? Recently, everybody in every institution worries about huge bubble in US Giant Tech peers: Facebook, Amazon, Netflix and Google’s parent company - Alphabet. One of obvious signals, which I want to suggest, is plunges of Netflix and Facebook. At July 26, Facebook plunged by almost 19% with disappointed performance. The worse thing is that analysts in Wallstreet and insiders of the company suggest that Facebook already enter to plateau. If it’s true, we don’t need to too much worry about recent Techs plunges. There aren’t doubts about futures of Netflix, Amazon and Alphabet at least among analysts in the street. But share-price of Netflix had decreased temporarily more than 10% at the day of reporting financial performance during 2Q18. Even in plunge of Early Feb, no share-prices in the group went down more than 10% during a day. I believe that the market is starting to react to the concerns over the bubble. I hate using P/E to predict companies’ share-prices in the market, but the tech companies which have absurd P/E will be starting to go down when they couldn’t meet consensus of the market. And those movements could be disaster for other companies which have appropriate business model with cash-flow like Alphabet. The strong performance supported Alphabet in the market, but the share-price ended at 2.54%, at Friday. Amazon also recorded more-than-expected performance, and started at +3.76%, but ended at +0.20% at the day. Apple was down too.

2. But I think the real Bubble Crush needs little more time. I think the reaction to the bubble is just in the earliest stage. In the same line, in perspective of short-term, I think plunge in Facebook is overreacted. But in perspective of middle-long term, it’s no big deal. A Tech company, which shows signs of plateau, should plunge. And Facebook is already entering to puberty. It’s no exceptional cases even in traditional industries. All the now-blue chip companies were showing the highest P/E in their growth stage, even though Internet Techs are exceptionally high. Like Alphabet, which has been much slower than Amazon in its movement in the market, Facebook already have enough revenue, operating income and profit. The company has reliable business model based on advertisement service, and is getting enough cash flow from the model. It’s untraditional for tech companies, but I believe there is enough possibility of transition of recognition by the market participants on Facebook from the adventurous companies which aren’t generating appropriate cash flow based on its market value like Amazon, to complete company like ExxonMobil, Comcast or Apple which are already generating the greatest performance based on reliable business models. So share price of Facebook could just need some decrease to adapt to the market’s new valuation model. Unlike Facebook, Netflix, which got bright future and has no assured business model, recovered its plunge, and ended at -5.25% from the lowest -14.10% at July 17.

3. So, I believe there will be additional plunge in Facebook. The Bubble Crush is too early to be realized, and I believe that Facebook is just going through transition of it’s valuation model of the market. At this point, I set my first-target of the company’s share-price to $160.

Mr. Banker, http://markety.tistory.com

Facebook (July 28, 2018).pdf