Facebook (FB) – Time to Take Profits

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April 10, 2015

We Sold FB today

On April 4 we added Facebook to our portfolio. However although we really like this stock and think it has a great future, the chart is quite odd and we are concerned that it might show weakness before it shows strength. Following an old and valid adage, “One can’t lose money by making a profit”, we realized a profit. 

When investing, the key criteria is to always protect your capital. So we sold FB today at $83.02.

We made a gain of 2% (which annualized for the 5 day hold is 122% gain). A very nice return.

Our original blog is below.

April 4, 2015

Facebook

Technical Analysis

We begin with a surprising chart. After all, technical analysis is essential to understand stocks. Technical analysis is a gauge of investor beliefs and expectations. It shows us on a graph, what the crowd believes. Stocks move based on what the crowd believes. Underlying value, and historical financial statements and analysis are really good to understand a company, but a stock moves in accordance with what the crowd believes. The most valuable and well managed companies can languish and be unloved, and if you don’t jump on the bandwagon of the favorite of the crowd, you will have a hard time beating the market.

So look at Facebook. It was supposed to IPO in the $20’s, then $30, and when it finally IPO’d, it zoomed up. Then crashed as most people didn’t believe that there was true value behind the company. After all, here was a phenomenon that had attracted world-wide attention, but made zero income. Then gradually the company started figuring out how to obtain advertising revenue. Along with much controversy about privacy concerns, advertising revenue started pouring in.

By March of 2014, the stock hit $75. Then the crowd decided that the advertising world was changing from computers to PCD’s. If you couldn’t get advertising revenue from Facebook on your Smartphone, the company had lost its drawing power. The stock plunged quickly to the $55 range.

But Mark Zuckerberg, CEO of Facebook, once again proved his mettle. He said revenue would pour in from mobile advertising, and that is exactly what started to happen. The stock began a relentless climb to the $85 level. From March 2014 to March 2015, the stock rose 55% in ONE YEAR.

But again in late 2014 and early 2015, the stock seemed to hit resistance. It stalled. Recently, it surged past that resistance level.

FB from IPO

Why Does Facebook Continue to Surprise

A public company’s stock can be a currency. Some companies issue as little stock as possible. Some companies (like Facebook) use that currency to its maximum benefit. Zuckerberg uses FB stock to buy other companies, and to drag Facebook to the forefront of the media world.

The following is a list of Facebook acquisitions, taken from Wikipedia. It is quite a surprise if you don’t follow the company closely, to see just how effectively the company uses its stock as currency.

# Acquisition date Company Business Value (USD)
1 August 23, 2005 facebook.com domain name AboutFace $200,000
2 July 19, 2007 Parakey Offline applications/Web OS  
3 June 23, 2008 ConnectU Social networking $31,000,000
4 August 10, 2009 FriendFeed Social networking aggregator $47,500,000
5 February 19, 2010 Octazen Contact importer  
6 March 2, 2010 Divvyshot Photo management  
7 May 13, 2010 Friendster patents Intellectual property/patents $40,000,000
8 May 26, 2010 ShareGrove Private conversations/Forums  
9 July 8, 2010 Nextstop Travel recommendations $2,500,000
10 August 15, 2010 Chai Labs Internet applications $10,000,000
11 August 20, 2010 Hot Potato Check-ins/status updates ~$10,000,000
12 October 29, 2010 Drop.io File hosting and sharing ~$10,000,000
13 November 15, 2010 FB.com domain name American Farm Bureau Federation $8,500,000
14 January 25, 2011 Rel8tion Mobile advertising undisclosed
15 March 2, 2011 Beluga Group messaging undisclosed
16 March 20, 2011 Snaptu Mobile app developer $70,000,000
17 March 24, 2011 RecRec Computer vision undisclosed
18 April 27, 2011 DayTum Information graphics  
19 June 9, 2011 Sofa Software design  
20 June 9, 2011 MailRank Email prioritization  
21 August 2, 2011 Push Pop Press Digital publishing undisclosed
22 October 10, 2011 Friend.ly Social casual Q&A service app undisclosed
23 November 8, 2011 Strobe HTML5 mobile apps, SproutCore undisclosed
24 December 2, 2011 Gowalla Location Based Service  
25 April 9, 2012 Instagram Photo sharing $1,000,000,000
26 April 13, 2012 Tagtile Customer loyalty app undisclosed
27 May 5, 2012 Glancee Social discovery platform undisclosed
28 May 15, 2012 Lightbox.com Photo sharing undisclosed
29 May 21, 2012 Karma Social gifting undisclosed
30 June 18, 2012 Face.com Face recognition platform $100,000,000
31 July 14, 2012 Spool Mobile bookmarking and sharing content undisclosed
32 July 20, 2012 Acrylic Software RSS app Pulp and secure database app Wallet undisclosed
33 August 24, 2012 Threadsy Threadsy is a social aggregator, Maker of social marketing tool Swaylo undisclosed
34 February 28, 2013 Atlas Atlas advertiser suite less than $100,000,000
35 March 2013 osmeta Mobile software  
36 March 14, 2013 Hot Studio Design agency  
37 April 23, 2013 Spaceport Cross-platform game framework  
38 April 25, 2013 Parse Mobile app backends $85,000,000
39 July 18, 2013 Monoidics Automatic verification software  
40 August 12, 2013 Jibbigo Speech translation app  
41 October 13, 2013 Onavo Mobile analytics  
42 December 17, 2013 SportStream Sports conversation analysis  
43 January 8, 2014 Little Eye Labs Performance analysis and monitoring tools for Android $15,000,000[53]
44 January 13, 2014 Branch Web conversation platform $15,000,000
45 February 19, 2014 WhatsApp Mobile instant messaging $19,000,000,000
46 March 25, 2014 Oculus VR Virtual reality technology $2,000,000,000
47 March 27, 2014 Ascenta High-altitude UAVs $20,000,000
48 April 24, 2014 ProtoGeo Oy Fitness tracking app Moves undisclosed
49 August 7, 2014 PrivateCore Secure Server Technology undisclosed
50 August 26, 2014 WaveGroup Sound Sound Studio undisclosed
51 January 6, 2015 Wit.ai Speech recognition undisclosed
52 January 8, 2015 Quickfire Video Compression  
53 March 14, 2015 TheFind Ecommerce

 

The Most Astonishing of These Acquisitions

In February 2014, Facebook paid an enormous price to buy WhatsApp – $19 BILLION US$. WhatsApp had an enormous number of users, but earned very little revenue. Observers critically thought that FB had stumbled.
 

Here’s Why Facebook Bought WhatsApp

WhatsApp had more than 450 million active users — meaning they used the service at least once a month — compared to 1.23 billion for Facebook. Those users sent 500 million pictures back and forth per day, about 150 million more than Facebook. If you want traffic and if you want to expand your reach, you “buy” a giant leap up, and that is exactly what FB did. And they used the stock as the currency to do it. VERY SMART.
 

Is Facebook Profitable

Revenue

2012 – $ 5.089 billion

2013 – $ 7.842 billion

2014 – $ 12.466 billion

Profit

2012 – $ 32 million

2013 – $ 1.491 billlion

2014 – $ 2.925 billion

Not too shabby!!! And growing dynamically. Once again, FB has proved itself very nimble and very adaptable.

 

The Market & Facebook

Facebook has become a market darling. Investors are realizing that Facebook is here to stay, is nimbler than others, and has the smarts and technology to stay ahead of the crowd. Investors are willing to pay a huge premium for the stock, hoping that future earnings will justify the current price. Is this really bad? If you look at any other large cap stock’s price movement over the last 2 months, most have dropped substantially from their highs, some have dropped a bit, and the odd one has held its ground.
 
Facebook broke through its resistance level and moved a bit higher. That illustrates the confidence that investors have in the company.

 

We Are Adding Facebook

Today FB took a minor pullback pulling back from $84. to $81. We took advantage of this pullback to add Facebook at $81.55.

 

 

 

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By Larry Cyna

Mr. Cyna is an accomplished investor in the Canadian public markets for over 20 years, and has managed significant portfolios. He is a financing specialist for private and public companies, and has expertise in real estate and debt obligations. He has assisted private companies accessing the public markets, has been a founding director of public companies and continues as a strategic consultant to selected clientele. He is and has been a director, a senior officer and on the Advisory Board of a number of TSX and TSXV public companies in the mining, resource, technology and telecommunications sectors, and the Founding Director of two CPC’s with qualifying transactions in mining and minerals. He was an honorary director of the Rotman School of Management MBA IMC program, has completed the Canadian Securities Institute Canadian Securities Course & Institute Conduct and Practices Handbook Course, was a former Manager under contract to an Investment Manager at BMO Nesbitt Burns, a roster mediator under the Ontario Mandatory Mediation Program, Toronto, a member of the Institute of Corporate Directors of Ontario, a member of the Upper Canada Dispute Resolution Group, and the Ontario Bar Association, Alternate Dispute Resolution section. He obtained his designation as a Chartered Accountant in Ontario in 1971 and was the recipient of the Founder’s Prize for academic achievement together with a cash reward. He became a CPA in the State of Illinois, USA in 1999 under IQEX with a grade of 92%. He is a Member of the Institute of Chartered Accountants of Ontario and the Canadian Institute of Chartered Accountants. He holds certificates in Advanced ADR & in Civil Justice in Ontario, Faculty of Law, University of Windsor, certificate in Dispute Resolution from the Ontario Institute of Chartered Accountants. Previous accomplishments are Manager of Cymor Risk Consultants LP specializing in Risk Management Assessment; CEO of Cyna & Associates specializing in mediation and ADR; Founder & Senior Partner of Cyna & Co, Chartered Accountants, a fully licensed and accredited public accountancy firm with international affiliations; and was a partner in a large public accountancy firm. Mr. Cyna is well known in the Canadian Investing community. He is invited to, and attends presentations given by public companies usually 3 or 4 times each week. These presentations are intended by the various hosting companies to present their inside story to sophisticated parties and Investment Managers for the purpose of attracting funding, or of making parties more interested in acquiring shares of those companies. Being a part of this keeps Mr. Cyna deeply involved in the current market and leads to numerous investment opportunities.