Monthly Archives: February 2017

Facefraud and Shitter, Part 2

My apologies I am about a week late in posting this but my trusty Lenovo laptop finally bit the dust last week after 3 years of emitting a high pitched squeal after I dropped it from about 1.5 meters around 3 years ago. See below for the email I sent out to the investment club participants. A few things to note:

1 – New all time high of +$137/share was hit after hours, however it was interesting to note FB closed the week down slightly just over $130/share.

2 – Despite my dislike for the “cash-for-eyeballs” advertising model FB utilizes, I recognized the potential that they could continue to post good results in line with market expectations so utilized a call/put options straddle to take advantage of a move up or down. The options expire Feb. 24th so ideally FB makes a move outside the range $127 = $138 before then in order for the trade to profit.

3 – The earnings came with an accounting caveat – they “Beat” 2016 Earnings On A $1 Billion Tax Benefit From Accounting Change.

“a slightly deeper dive into the results reveals that a conveniently timed accounting change created $214 million of extra net income in 4Q and drove about 73% of the earnings “beat” for the quarter.”

4 – Despite 5 hours of denial from Fuckerberg, they were accused of stealing software from Zenimax (which later made it’s way into the Oculus Rift product, which was purchased by FB for $2B).

Please see full email text below – I will post again this month with an update on this trade plus any new ideas that come to mind.  Cheers!  Murphy 🙂

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Hello “Gents”,

Well today is the day. Facefuck reports after hours and Shitter a week from now.

Synopsis below – for those of you who did not get my 1st analysis please see the following bLAWg post:

http://murphysblawg.ca/index.php/2017/01/26/peak-social-media-short-facebook-twitter/

Earnings released after trading is closed today so I will take positions in options. It would not surprise me if they continue to cook the books to keep this sham going so I am thinking a call/put straddle may be the way to play it.

I will leave you with the following article that I found posted today – here is Google’s chart since they posted earnings on Jan. 26th, 2017.

“Facebook and Google Have a Problem With “Crappy” Ads”

https://www.bloomberg.com/gadfly/articles/2017-02-01/facebook-and-google-have-a-problem-with-crappy-advertising?cmpid=yhoo.headline

When the world’s biggest spender on marketing warns that online advertising is broken and ineffective, people from Madison Avenue to Silicon Valley should listen.In a recent speech, Marc Pritchard, chief brand officer at Procter & Gamble Co., called for sweeping changes in how technology companies such as Facebook Inc. and Google operate, as well as to the opaque billing practices of ad agencies like WPP Plc and Omnicom Group Inc. He laid out a five-point plan on how to fix things and issued an ultimatum: P&G will no longer pay for any digital ads, tech, or agency services that don’t meet its standards. Oh, and Pritchard thinks much of the marketing online is “crappy” and the viewing experience “even crappier”

Best quote:

“We serve ads to consumers through a non-transparent media supply chain with spotty compliance to common standards, unreliable measurements, hidden rebates, and new inventions like bots driving fraud. Which all leads to an even bigger problem: we’re not growing fast enough. Despite spending $200 billion on advertising in the U.S. alone, the growth rates of our collective industries are really pretty anemic.”

https://www.bloomberg.com/gadfly/articles/2017-02-01/facebook-and-google-have-a-problem-with-crappy-advertising?cmpid=yhoo.headline

http://adage.com/article/media/p-g-s-pritchard-calls-digital-grow-up-new-rules/307742/

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Murphy’s bLAWg – Facefraud and Shitter, Part 2

OK so after market close today we will get Facebook’s 2016 Q4 earnings report.

“Facebook, Inc. is expected* to report earnings on 02/01/2017 after market close. The report will be for the fiscal Quarter ending Dec. 2016.”

As per my earlier post, the Facebook google trends graph continues downward.

ANALYST RECOMMENDATIONS

Note I am in the contrarian minority by calling sell short compared to most analysts (see buy/hold/sell) recommendations below. This is fine. Someone has to have some balls and call them out.

If the all time high of $133.50 is breached to the upside, I am wrong and it’s time so sell (currently sitting @ $132.56).

Also note that these analysts have a conflict of interest in the sense that their access to management, which is required to do their job, can be limited if they are critical of company prospects…so they tend to be ‘optimistic leaning’.

Another look at the analyst recommendations over the past year:

Some links:

http://www.techinsider.net/10-countries-where-twitter-inc-twtr-and-facebook-inc-fb-usage-is-shrinking/1130307.html

https://www.directorstalkinterviews.com/facebook-inc-25-5-potential-upside-now-implied-raymond-james-2/412721238

https://sportsperspectives.com/2017/01/17/facebook-inc-fb-lowered-to-hold-at-zacks-investment-research.html

That being said with the above heavily skewed opinions, if bad numbers ARE released we could see a sharp move downward should all these optimistic hands decide their analysis is no longer correct and sell. The latest daily chart:

FB is up over 10% in 2017 so far – RSI indicator showing overbought conditions which indicates likely reversion to mean sometime soon.

FB NOW WIDELY HELD

FB has cracked the most widely held stocks – it’s currenty #14. The shares have been distributed widely amongst the population & institutions which makes it a great time to execute the closing actions of “Operation Pump_and_Dump”.

MORE LAWSUITS

Fuckerberg is back in court, this time denying his Virtual Reality brotege Palmer Fuckey did NOT steal/use software/methodology from a company called Zenimax and use to develop the Oculus Rift VR headset.

http://www.businessinsider.com/mark-zuckerberg-palmer-luckey-to-testify-in-2-billion-zenimax-lawsuit-against-oculus-vr-2017-1

http://www.theverge.com/2017/1/18/14317004/oculus-vr-zenimax-lawsuit-trial-palmer-luckey-testimony

The lawsuit is for $2 billion, basically what Facebook paid for Oculus. At the center of the lawsuit is Oculus CTO John Carmack, who previously ran a video game company within Zenimax called id Software and is best known as the mastermind behind video games like “Doom” and “Quake.”

John Carmack, CTO of Oculus.Wikimedia Commons

Zenimax has accused Oculus executives of knowingly stealing its software and trade secrets through the hiring of Carmack and five of his employees from id Software.

It will make a great starting plot for “The Social Network Part 2” movie that surely will be released in the not too distant future.

(Note that while I am not a big fan of the display ad revenue model as applied via Facebook given it’s lack of transparency, potential ineffectiveness & overall value proposition, I think if they do have a selloff/hard time growing the next few years, their next leg up will be to ride the VR wave leveraging their connectome of humanity.)

EARNINGS RELEASE

Will Facebook beat the street or eat the meat [sic]? It’s hard to say. A lot likely depends on the overall market as both the broader market and FB have been in an upward trend for years:

Although the last quarterly earnings report on November 1st, 2016 disappointed the market and let to a selloff. Interesting to note the price that day was $129.50/share on that day so we’ve pretty much round-tripped back to that point setting up for the next earnings release.

In shorting Facebook or Twitter I’d definitely say the weaker hand is Twitter, but given nothings goes up forever and the analysis I’ve presented in this post plus the previous one perhaps it’s time for this FANG darling to take some time to consolidate. Twitter has had the shit kicked out of it recently so maybe we can catch this move at the turn and get a larger %-age gain, i.e. further to fall for ol’ FB.

However, It IS interesting to note that Facebook insiders have been net sellers at a 3:1 ratio over the past 3 and 12 month periods:

…and that COO Sheryl Sandberg has sold 25% of her holdings since the last quarterly earnings report in early November, reducing her holdings from around 4 million shares to close to 3 million shares as shown here (880,000 shares was the big dump, sold on Nov. 21st, 2016 via disposition (i.e. direct sale):

http://www.nasdaq.com/quotes/insiders/sandberg-sheryl-723415

Even stranger is that as of July 18th, 2016 “Sheryl Sandberg, with a reported 4.6 million shares as of a July 18, 2016, reporting date.”

http://www.investopedia.com/articles/insights/082216/top-9-shareholders-facebook-fb.asp

So you could argue in the last half a year-ish she reduced her holdings by 1.7 million shares or by 37%.

STRATEGY

B/C everyone is so bullish FB (especially after the Apple beat yesterday) I’ve opted to utilize a bearish strip option (put/call same strike with 2:1 ratio), to provide some protection should Facefraud continue it’s ridiculous march upwards. Stay tuned :).

http://www.investopedia.com/articles/active-trading/071614/strip-options-market-neutral-bearish-strategy.asp