With stocks off to their worst start to a New Year ever, the bulls have watched in horror as a number of their big-tech momentum favorites have fallen out of the sky — closing the gap with much weaker small-cap stocks that are, on the whole, on the verge of outright bear market territory.
Towards the top of the list is social media icon Facebook Inc. (FB), which has been slammed down out of a two-month trading range in the worst pullback since August.
That’s been great news for the FB January $102 puts that were trimmed for a 73% profit by Edge Pro subscribers on Thursday.
I think more downside movement — and thus, upside profit for the puts — is coming for FB stock as investors look through distractions like CEO Mark Zuckerburg’s charity aims, paternity leave and desire to create a real-life AI butler akin to Iron Man’s JARVIS.
Facebook Stock Full of Small Problems
The core product has already lost its cool with the key teenage demographic (I’ve personally disabled my account) as news feeds are filled with moms and dads, political rants and baby pictures, devaluing what was once the exclusive purview of young college students checking each other out. FB stock also depends on continued user growth and an increase in mobile advertising spending (which would be hit by the ongoing drop in corporate profits).
Other efforts, like the Paper app, have fallen flat.
The focus on the Messenger app feels like another attempt by Facebook stock to replace a cheap and functional service (SMS texts) for another walled-garden ecosystem. Same with reports of a local business review feature.
And the $599 Oculus VR headset looks, at this point, like the second coming of Nintendo‘s (NTDOY) Virtual Boy — a neat but overpriced and unnecessary gadget.
We’ll know more when Facebook stock reports quarterly earnings and updated user metrics on Jan. 27 after the close. Analysts are looking for earnings of 67 cents per share on revenues of $5.4 billion.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
