During May 2012, Facebook joined the Nasdaq by pricing its IPO at $38 per share. By the end of July 2012, Facebook shares were trading around $30, and today they trade between $19 and $20. But why did Facebook's shares fall so much? Is it because Goldman Sachs and other institutional investors are selling their shares? No, the real reason for the 50% drop is always linked to fundamental factors. At the end of July, Facebook reported slower growth and did nothing to ease concerns about future results. Let’s look at some key Facebook figures.

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Key Facebook Figures

∟ Total Revenue and Net Income: Sales of $4.33 billion, EBITA of $1.07 billion, and net income around $0.77 billion.

∟ Important Ratios: Price/Sales = 9.3, Trailing P/E = 67.06, Forward P/E = 30.76, Price/Book = 3.12.

∟ Cash and Debt: Cash of $10.2 billion and debt of $0.7 billion.

∟ Market Capitalization: $41.52 billion (based on a share price of about $19.70).

(Source: Yahoo Finance)

Facebook’s story is similar to the .com bubble of the late ’90s. High expectations combined with weak fundamentals eventually create big bubbles. The Facebook bubble has now burst. This is bad news for current Facebook investors but might be a trading chance for others.

The 3rd Largest IPO in US History

Facebook’s IPO raised $16 billion, making it the 3rd largest IPO in US history. The largest US IPO raised $19.7 billion (VISA) in 2008, and the second largest raised $18.1 billion (General Motors) in 2010.

Facebook Price Chart

In the chart below, we can see Facebook’s stock performance since its first day of trading, showing the high, low, close prices, and volume.

Fundamentally and strategically, Facebook is still expensive, but that doesn’t mean it can’t have a strong technical rebound. The key question is when. We’ll try to answer this using our unique TCI Indicator Analysis.

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TCI Indicator Analysis on Facebook Stock (Possible turnaround on September 5th or 6th, 2012)

The TCI indicator was applied to Facebook stock, and here are the results. ► Trading Center Indicator (TCI)

First, we must remember that Facebook stock started trading in May 2012, so 69 trading days are not enough for fully reliable statistical conclusions. Despite this, we will attempt a prediction based on past TCI analyses of other stocks.

If the TCI is correct, we may see a turnaround about 9 trading days after August 23rd, 2012. This suggests an upward move could begin around September 5th or 6th, 2012. This is marked as the second point in red in the following TCI data table. For those who see Facebook as a trading opportunity, we recommend waiting a few days before buying shares. A major trend change will likely need a noticeable rise in daily trading volume above 40-50 million shares during the early phase of any upward move.

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Facebook Social Network Profile

Facebook is the world’s largest social network, launched in February 2004 by Mark Zuckerberg. As of June 2012, it had over 950 million active users worldwide, with half accessing Facebook on mobile devices. Facebook also attracts about 140 million unique monthly visitors in the U.S. (Quantcast estimate, May 2011).

🔗 More: » The Facebook Share on Yahoo Finance

 

□ Giorgos Protonotarios, for Trading Center (August 24, 2012)