Monday, May 21, 2012
$8 Target Price on Facebook
Who was right about Facebook?
Well, it wasn't celebrated media stock picker Jim Cramer. Here's the video where he calls the Facebook IPO "the deal of the century."
Here is Jim Cramer telling his rabid fans on MAD MONEY that buying at the IPO was a "no brainer."
Was it Wall Street who warned retail investors about the Facebook IPO? ARE YOU KIDDING? Here's an article that now says that Facebook's falling share price "doesn't matter" because Facebook is a "special kind of company."
That special? Really? Ask the losers who bought FB on the private market months before the IPO in a range from $42 to $48 per share. The average private FB sale price was $40. Notice this price is 5% below the IPO and now nearly 20% underwater in just two days. I'm sure all these investors looking at hundreds of thousands of dollars in losses (or more) did not care about money and just wanted to help build a more connected world.
Who was warning America about this corporate mess? It was me (along with a few others) but I actually took the time and wrote a book about the Facebook IPO three weeks before it happened warning America to avoid this IPO and stock. As I said in the book (which you buy for just 99 cents on Amazon), I don't believe I'm the next Nostradamus but hey, on this issue I'm batting 1.000%.
The road show failed.
General Motors realized the obvious and pulled their advertising on FB just three days before the IPO.
Facebook's inexperienced management let their investment bankers manage the IPO into a disaster by not only raising the IPO price but the number of shares being sold.
FB listed on NASDAQ to be cool instead of the NYSE who could handle the IPO demand. (Didn't FB management learn from the recent BATS IPO disaster?)
By the way, who called the Facebook IPO a flop (for retail investors) before it flopped?
Here are my words carved in stone (sort of) nearly one month before the IPO in my book, Facebook as a Public Company.
I have an $8 target price for this stock. I am a going long on FB when (and if) it breaks $10. There will be major institutional and technical support at that level so I don't see a filled trade coming anytime soon. (In a year, maybe.)
Over the next month FB will get much institutional buying as index funds and other investors buy the stock for their needs. On the flip side, when FB insiders get permission to sell they will be dumping shares by the millions. This insider selling-institutional buying will support the stock through the summer. But major earnings disappointments are coming and Zuckerberg's arrogant attitude that FB is somehow "different" or "special" has already worn thin. Shareholders expect $$$$$ and I do not see how Facebook delivers, at least under the current set of conditions outlined in the S-1.
Within a year, I expect to get filled on this order filled at $8. If not, so what? I can wait longer than FB can exist.
As to Jim Cramer, here he is yesterday on MEET THE PRESS calling the Facebook IPO "a fiasco" and "one of the worst things he has ever seen" and a "SELL SELL SELL" rating on the stock.
His fans don't care about the accuracy of his calls or making money either, for that matter. Here is one estimate that has a Cramer correctness rating just 44.9% of the time.
In other words, a coin toss at 50% is more accurate than taking stock picks from Jim Cramer.
Even a comedian like Jon Stewart knows that Cramer's MAD MONEY calls are just that---MAD. Watch Cramer defend Bear Sterns three days before the company filed for bankruptcy and Stewart ridicule him for his rightly ridiculous calls.