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Saturday, July 27, 2013

Facebook becomes interesting now

I was very bearish about Facebook (FB) since its IPO and watched its price to plunged over 40% below $20 back in Aug 2012. But now I'm kind of changing my mind and think FB starts to become interesting now. Why? Well, when facts change, I change my mind as well.

Last week, FB reported its earnings, which blew away the estimates by a wide margin. What happened to FB that has made it suddenly rise? Long story short, it has totally redirect its strategy by focusing more on the mobile business now. Last year FB bet heavily in its mobile application. As a result, the amount of mobile users were expanding by 51% over the last year and the company has gained roughly 41% of its revenue through mobile advertising. The FB stock jumped 30% with its impressive earnings. But don't get me wrong. FB is still an extremely expensive stock. I suspect that this hyped sentiment was a bit overreaction and likely short lived. When it cools down, the stock price will likely recede as well. But if FB comes back to below $30, I think it could be a good speculation entry point. Although it is still unbelievably expensive, the market is not always rational. It likes companies with great potential in growth. The new FB probably fits into this kind of market mentality, which will push its price to even more unreasonable level before coming back to reality. If you like speculation, FB may be a good choice. But don't jump into it too soon and watch your position size!

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