It’s Time to Pull the Plug on Facebook Stock

Advertisement

It’s a question that every investor needs to ask themselves from time to time — when should I sell this stock?

Continued User Growth Makes FB Stock Bulletproof

Source: Wachiwit / Shutterstock.com

The answer can vary, of course, based on your trading style, your goals, the market and perhaps most importantly, how you feel about the company. Any disciple of the Warren Buffett school of investing will tell you that before you even think about putting your money into a company, you have to believe in its mission, its business model and its product.

So I ask you this, dear readers — what does it mean when the people who are running the company start jumping ship? How much faith can you have in the future of a company when the C-suite starts cashing out their shares?

Not a lot.

And that brings us to the hard truth of Facebook (NASDAQ:FB) stock. The darling turned Mark Zuckerberg from a Harvard dropout to one of the richest people on the planet. And it has products that connect billions of people.

At $210 per share, Facebook continues to trade near all-time highs, shooting up another 30% in the last year. The globe’s biggest social network has nearly 2.5 billion monthly average users, and the company says 2.9 billion people use one of its core products — Facebook, WhatsApp, Instagram or Messenger — each month.

And it’s a cash cow. In its most recent earnings report, FB reported revenue of $21.1 billion and earnings per share of $2.56. It raked in a cool $8.52 average revenue per user, which beat forecasts of $8.38.

But obviously, not everything is rosy in Menlo Park.

Storm Clouds Are Brewing for FB Stock

As local journalism began fading away, Facebook became the go-to source of daily happenings. People used Facebook not only to trade baby photos or to make silly memes, but also to talk about current events and politics. Facebook became a virtual town hall where you could chat with your friends, your friends’ friends or with complete strangers.

Then came the 2016 elections, when the United Kingdom’s Cambridge Analytica harvested the data from millions of profiles and sold them. Zuckerberg was forced to apologize in 2018, and the Federal Trade Commission hit Facebook with a $5 billion fine.

The violation of people’s privacy was staggering. It became seminal moment as people started viewing Facebook in a more skeptical light.

And something even more damaging was brewing. Russia embarked on a concerted trolling campaign during the 2016 presidential election, promoting false “news” stories and other content designed to divide U.S. voters.

Trolling Continues

Unfortunately, this trolling isn’t over. And Zuckerberg is making the matter worse by announcing that Facebook won’t take down political advertising when it contains obviously false information. He said in an interview on CBS:

“What I believe is that in a democracy, it’s really important that people can see for themselves what politicians are saying, so they can make their own judgments. And, you know, I don’t think that a private company should be censoring politicians or news.”

So is it any wonder, then, that Facebook rolls into 2020 facing the perils of government regulation? After all, if the company won’t regulate itself, it’s practically inviting the government to step in.

Zuckerberg was in Brussels last week to lobby European Union regulators. Some in Europe are considering laws that would address online content, and U.S. legislators are becoming more vocal in promoting the regulation of massive tech companies. Facebook is joined in the hot seat by Amazon (NASDAQ: AMZN) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). Many see these companies as having too much power and too little accountability.

While regulation is preferable to an out-of-control, irresponsible Facebook, it’s definitely going to be expensive for Zuckerberg & Co. At the best, Facebook will have to lobby, campaign and create new divisions in an effort to convince Congress and the EU that it can police itself.

At the worst, it can find itself hamstrung by government red tape the next time it wants to roll out a new product. And you already see that happening with the Libra cryptocurrency.

Insider Trading Raises Red Flags for Facebook

Obviously, there are some people in Facebook’s headquarters who are hedging their bets.

  • General Counsel Jennifer Newstead has been systematically selling hundreds of FB shares each week all year and now holds zero shares.
  • Original Facebook investor Peter Thiel dumped another 53,000 shares earlier this month and now has fully divested himself of the 44 million shares he held at the company’s IPO in 2012.
  • Chief Revenue Officer David Fischer and Chief Financial Officer David Wehner both sold more than 11,000 Facebook shares in December.
  • Zuckerberg went on a huge selling spree over the last half of 2019, selling about 7 million shares of FB stock and bringing his holdings down to less than 4.3 million shares.

That’s a lot of hedging. And it’s a great signal to investors that maybe they should be doing the same thing.

Facebook shares are up 160% in the last five years. It’s time to start taking your profits and looking for another stock that you can believe in.

Patrick Sanders is a freelance writer and editor in Maryland, and from 2015 to 2019 was head of the investment advice section at U.S. News & World Report. Follow him on Twitter at @1patricksanders. As of this writing, he did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2020/02/its-time-to-pull-the-plug-on-facebook-stock/.

©2024 InvestorPlace Media, LLC