The leading social-networking website operator saw its shares close below $30 yesterday. The grim close of $28.84 is more salt in the wounds of investors who thought they were getting in this ground-floor opportunity at $38 two weeks ago.
It turns out that this ground-floor opportunity has a basement.
Most analysts are brandishing "I told you so" shrugs. Facebook was ridiculously priced as a $104 billion company. Not me. I see Facebook as a higher-caliber company than the one that cynical pros are laughing at now. I even argued that Facebook at $38 could be cheap under certain conditions. Now that it seems as if the bearish masses are right, let me point out a few reasons optimists may have the last laugh here.
1. Bring on the earnings
No one can respectfully compare Facebook's pricey debut to the original dot-com bubble. Mark Zuckerberg's company is very profitable.
Analysts see Facebook earning $0.48 a share this year, and $0.61 a share next year. They're also looking at $1.04 a share in 2014 and $1.49 a share come 2015. These aren't aggressive estimates. Keep in mind that these are the same analysts who were talking down the company's income prospects just before the IPO.
Facebook closed last night at 19 times 2015's profitability. If we go with $38, that's an earnings multiple of 25.5. That certainly seems more than reasonable for a company expected to grow its profitability by 70% in 2014 and 43% in 2015.
I can hear you already. "Are you telling me that I have to wait three years for $38?"
No. I'm just pointing out that there's a mattress waiting if the other reasons I'm about to outline don't get Facebook there sooner.
2. Facebook ads will get better
Yes, the ad situation on Facebook stinks. But just wait. Most of the $1.7 billion operating profit that Facebook turned on $3.7 billion in revenue last year came from those sponsored spots. Just imagine what Facebook can do with its 901 million users who have forged 125 billion friendships when it's really serving up ads that are relevant and truly social.
Somewhere between the invasive and quickly abandoned Beacon initiative of 2007 and the unclickable ads of today, there's a golden opportunity to milk its mammoth number of page views.
3. Mobile monetization will happen
A common knock on Facebook is that the popularity of smartphones will hurt the company. It's harder to monetize mobile usage than traditional website pages.
Well, try telling that to Millennial Media
4. New revenue streams are coming
Traditional advertising may be a hard sell on mobile, but as Facebook gets better about charging companies that lean on it for free publicity and sponsored status updates grow in popularity, new revenue opportunities will exist.
Will folks get annoyed if "like" requests are sponsored by a soft-drink company? There are 300 million photos uploaded to Facebook every day. Would shutterbugs be offended that Shutterfly
As Facebook bridges the gap between online social and offline social -- and it's doing that; pay attention -- there are going to be a ton of moneymaking opportunities.
It may take some time for Facebook's potential to kick in with investors. Clawing its way back to $38 may start later and from a lower starting price than now -- but it will happen if Facebook makes the most of its juicy position.
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The Motley Fool owns shares of Facebook. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
Longtime Fool contributor Rick Munarriz calls them as he sees them. He owns shares of Millennial Media and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.