Facebook (FB): When Bad News Is Really Good News

Posted: September 29, 2018 in Business, Facebook, Farros, Royal, Royal Blog, Stocks
Tags: , , , , ,

After trading sideway for a few weeks — while the rest of the market was going up — Facebook (FB) started its end-of-quarter / ramp-to-earnings run last week… hitting a high of almost 172 just a few days ago.

Things tried to knock the stock backwards.  Earlier in the week some key execs left the company and FB open sharply down, only to rally back even stronger.

And on Friday news of a data breech hit, again hitting the stock hard.  While it hasn’t rallied back yet, it did close nicely off its lows.

My take on these seemingly bad news events?

Zuckerberg and Sandberg don’t lose people they don’t want to lose.  If some execs exited, there was probably a good business reason for it.

And, while a data breach is always concerning, it was only a small % of actual Facebook users and dealt with demographic-type of info — available in lots of places — nothing even close to sensitive passwords or credit card-type info.

The breach was so benign, security experts say there is no need to even change your password (about 1:30 into the linked video).  THAT’S about as benign as it gets.

On the flip side, Facebook says they think they jumped on it fast enough to stop anything from even happening… so in a race between companies and hackers, FB’s response time — including disclosing the problem — seems to have been outstanding… exactly the kind of response the government has been looking for.

So, this is the kind of bad news that I think presents a good buying opportunity.

With this said, I do think there’s a good chance FB will see some more weakness based on bad news circulating in the press this weekend.  However, I’m less worried about that downside risk than I am about missing the next leg up… because I believe there’s a better chance big money investors will find FB’s suppressed stock price irresistible going into earnings over the next few weeks.  In fact, the action over the last few weeks suggests they’ve already started to pile in.

Please remember that it was just a scarce few months ago FB was trading at 218 on its way to the 240 level.  At Friday’s close of 164 and change, FB is now trading at crashed levels.  And this is for a company that thoroughly dominates their space… with about the best financials on the planet.

Also, please remember that FB’s earnings last quarter were actually pretty good… they beat MONSTER expectations, which was no easy feat.

What tanked the stock was ultra, ultra conservative guidance… which is the way Wall Street says a big earnings beat could be in the making… which sounds like a good news thing to me.

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