Hedge Funds building next Facebook bubble

Most people were surprised, including me, when Facebook’s stock price rose on and after November 14th when a large lock-up period expired.  In fact, in my last two posts, I made the prediction that Facebook’s stock price would fall to all-time lows.  Well, I was wrong. And here is my hypothesis as to why many people were surprised.

Those that really control the stock market are not the small investors, but the huge hedge funds.  These groups with billions of dollars can move a stock up or down based on their decisions to buy, sell, or short a stock.  My hypothesis is that these huge hedge funds made some good money shorting Facebook and now they are buying up shares to build the next Facebook bubble (Hedge funds buying Facebook).  As we know, the first Facebook bubble already exploded and the insiders made a killing.  I believe these same legalized crooks are now building the next one.

Prior to going public, the valuations projecting Facebook at $100+ billion relied on the company growing revenues at over 100% a year.  But if we look at the revenue growth for Facebook this year and what they are spending to get that top-line growth, we see that is merely a game of propping up revenue  in the short-term to maintain revenue growth (see tables below).  And the revenue growth isn’t any where near 100%.  Yes, Facebook is working on its mobile advertising platform, but based on what I have read, advertising revenue earned from mobile use is not a booming business (Google advertising revenue decelerating from increase in mobile use).

Facebook Top Line Year to date six months
Jun-11 Jun-12 Growth %
Revenue $1,626 $2,242 38%
cost of sales $377 $644 71%
sales & marketing $158 $535 239%
Margin $1,091 $1,063 -3%
Facebook Top Line Year to date nine months
Sep-11 Sep-12 Growth %
Revenue $2,580 $3,504 36%
cost of sales $613 $967 58%
sales & marketing $272 $703 158%
Margin $1,695 $1,834 8%

Therefore, based on the public information that has been reported for the first two quarters, there is no reason Facebook’s value should swing by the tune of $5 billion dollars just because a lock-up period expires.  The big boys are controlling Facebook’s stock price.  And when they want to take their profits, the bottom will fall out and the public investor will pick up the tab.


About Tincup

Musings on the Human Momentum and thinking about what that means to you and I and future generations.
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