FB - Facebook - Company Profile

Comments:

I recommended FB in a short-term position in the Option Investor newsletter this weekend. I had originally planned on recommending in LEAPS but it is an opportunity both short and long term.

Original Trade Description: Aug 5th

Facebook, Inc. provides various products to connect and share through mobile devices, personal computers, and other surfaces worldwide. Its products include Facebook Website and mobile application that enables people to connect, share, discover, and communicate with each other on mobile devices and personal computers; Instagram, a community for sharing visual stories through photos, videos, and direct messages; Messenger, a messaging application to communicate with other people, groups, and businesses across various platforms and devices; and WhatsApp, a mobile messaging application. The company also offers Oculus virtual reality technology and content platform, which allows people to enter an immersive and an interactive environment to train, learn, play games, consume content, and connect with others. As of December 31, 2017, it had approximately 1.40 billion daily active users. Facebook, Inc. was founded in 2004 and is headquartered in Menlo Park, California. Company description from FinViz.com.

Facebook disappointed on earnings when they projected lower margins and slowing user growth. With more than 2.41 billion users, did anyone seriously expect them to continue growing at the prior pace? Growth had tapered off over the last several quarters. After the recent privacy scandals there were a few users who decided to delete their accounts and maybe a few more have been dissuaded from signing up. However, I believe this is temporary. Facebook is THE social site and anyone who is not a committed hermit will eventually me a member.

The earnings warning is the result of new processes they had to put in place including thousands of new employees to police the posts. They are still finding bogus troll pages where Russia is trying to influence the elections. Also, the earnings warning was probably political as well. If they continue to post earnings blowouts in the midst of scandals it simply makes them a more visible target for regulators around the world. To claim higher expenses for policing members and posts was positive politically.

Earnings October 24th.

Shares crashed from $217 to $166 on the earnings disaster. Nothing fundamentally changed for Facebook. They still have multiple products that have not yet been monetized and earnings will continue to grow. Shares will eventually hit a new high with analyst targets as high as $275. Investors will come back.

Premiums are expensive so I am recommending a spread.

Buy Jan $185 call, currently $10.90, initial stop loss $165.
Sell short Jan $205 call, currently $4.45, initial stop lss $165.
Net debit $6.45.


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