FB Stock – Too Much Risk, Too Much Money
By Jeff Reeves
Editor, InvestorPlace.com and The Slant
Facebook (FB) has found new life in 2013, with the social media giant up over 100% year-to-date. But that is too much too fast, given the underlying problems with FB stock.
Facebook admitted in its November earnings call that it was having trouble retaining teen users. This is just one element of the problem FB faces as it hits critical mass. Growth among Facebook users in Western markets has slowed to the low single-digits quarter-over-quarter.
Those Western users in the U.S. and Europe are by far the most lucrative, too. I expect Facebook to show its first quarter-over-quarter decline in users in both its North American segment and its Europe segment this year — and while continued expansion elsewhere and the roll-in of Instagram’s growth may counteract some of that, the additional users from these other segments will undoubtedly be much less profitable than the ones lost in the West.
All this even as Facebook stock still trades for a forward P/E of almost 50.
It’s hard to believe this social media giant will ever lose its dominant status … however, there are very real short-term arguments against FB stock based on current valuation and growth concerns.
If you’re a long-term investor who bought a year ago, there’s reason to hold. But if you’re a short-term trader or considering entering FB at these levels, I would think twice about the risks in this social media stock.