Facebook is Running out of “Friends”

Keith Fitz-Gerald Mar 20, 2019

Dear Reader,

Too bad it’s not Thanksgiving because Facebook Inc.‘s (NasdaqGS:FB) stock is getting roasted faster than a 10-pound turkey.

Team Zuckerberg got hammered yet again, when Facebook’s stock fell another 3.03% during Monday’s trading session to close at $159.99, following news that 11 senior managers have handed in their walking papers.

All told, Facebook is down 6.53% and $11.17 from the high it put in only a month ago. That’s a $11.47 billion buzz cut in terms of capitalization.

Some 23.75% and $49.01 per share in the past 12 months alone.

I believe things could get far worse.

People are losing trust.

Not that they had much to lose.

Facebook is a disgrace in terms of how it’s handling public data, how it’s placed profit over people, and how it manages content.

Last week, for example, Facebook aired 17 minutes of live footage during which a terrorist murdered 50 worshippers at a New Zealand mosque. Then, videos of the shooting were uploaded a staggering 1.5 million times as copies spread throughout the “social” network.

I don’t know about you, but I’m really coming to hate that term. There is nothing “social” about what’s happening at Facebook.

Anti-social is more like it.

The company can control advertising to the pixel and, evidentially find all sorts of ways to profit from that, but it wants us to believe that it cannot control what’s aired, shared or posted??!!

I was born in the middle of the night, but it wasn’t last night, to paraphrase something my grandfather used to say all the time when dealing with incredulous explanations of the world around him.

Founder Mark Zuckerberg, once a Wall Street darling, is increasingly a pariah.

Worse, he’s missing in action when it comes to critical explanations at critical moments, instead preferring to send CEO Cheryl Sandberg to do his bidding at events like the Senate Intelligence Committee hearing last September.

Or, simply to issue press releases that are about as credible as the $100 trillion bill Zimbabwe issued in 2009 in a futile attempt to stave off hyper-inflation before that currency collapsed.

Worse, the company cannot seem to get out of its own way.

Take the nearly 24-hour outage last week that took down core Facebook services, Instagram and Messenger, for example.

Facebook claims that a server configuration issue was to blame, but that strikes me as a little too convenient. Another hack or data leak seems far more likely, given the target-rich nature of intimate personal data associated with 2.3 billion users.

Generally speaking, tech-giants are reluctant to admit that they’re incapable of policing their own networks against malicious users but Facebook is particularly bad at protecting information. Either from itself or from outsiders.

I believe that we’ll learn that Facebook and Instagram users – specifically – had their information stolen…again…during this latest outage. Unfortunately, I’m not alone in my thinking.

Speaking to Forbes, Dr. Max Eiza, a computer lecturer at the University of Central Lancashire noted that there’s “every possibility” both Facebook and Instagram users “could be at risk.”

We’ll know when the next apology tour starts and the explanations are even more vague than usual when it comes to owning up to what’s happened.

And finally, there’s the regulators or, more precisely, the regulatory concerns being voiced by various state Attorney Generals like Jim Hood of Mississippi who noted last week during an appearance on CNBC’s “The Exchange” that there is going to “have to be a reckoning.”

What catches my attention here is not the threat of legislative scrutiny, but that state authorities are considering taking action directly because federal authorities won’t, haven’t or can’t.

It’s only a matter of time before Facebook implodes.

The company has to develop an entirely new narrative to survive, and I’m not sure that’s possible at this stage of the game. Being cool just doesn’t have the cache it used to at a time when being responsible is more valuable.

Zuckerberg has to make some tough choices.

He can continue ahead in which case he risks public ire, regulatory pressure and legal action. Or, he’s got to make a pivot that de-emphasizes data collection in which case Facebook is far less attractive to advertisers and users alike.

Either way, Facebook is potentially worth a fraction of what it is today.

The latest data suggest that 74% of users are taking a break from Facebook, changed their privacy settings, or deleted their account completely. Worse, 44% of U.S. Internet users 18 to 29 have reported taken a break of several weeks or more from Facebook. Roughly 25% of this demographic, I might add, have deleted the Facebook mobile app completely from their smartphone according to data found by Pew Research Center.

Even old dogs like me are signing off. I’d delete Facebook from my phone, but Samsung won’t let me, which is a topic for another time.

Even Facebook’s top executives are logging off, figuratively speaking. Chris Cox, Facebook’s chief product officer announced that he’s leaving, due to disagreements over a big project. Chris Daniels, who runs Whatsapp, is also leaving his role, although without a comment.

That’s bad mojo when senior executives are so fed up with things that they’re willing to walk away from content they can’t control and users they can’t properly value.

Advertisers including companies like Unilever and Basecamp have already pulled hundreds of millions, and are threatening to pull more. And, that’s a trend I don’t see reversing any time soon.

Critics and Facebook fans will challenge this thinking, of course.

Let ’em.

The headwinds are mounting, and I believe there’s a very good case to be made that Facebook shares fall substantially.

Consider shorting Facebook Inc. (NasdaqGS:FB) shares on every rally above $160, especially when Facebook fans (and Silicon Valley insiders with a lot to lose) try to pump up the stock.

Or, simply buy LEAPs puts like the FB January 15, 2021 $160 Put (FB210115P00160000) using the same threshold as your trigger. That way you’re only risking the capital needed to make the trade rather than the margin required for shorting.

More advanced options traders could consider other strategies like selling bearish call spreads or even variations of calendar spreads to accomplish the same thing.

Risk management is pretty simple.

I suggest exiting the trade or paring your position back if it breaks $170, which was support last July, following Team Zuckerberg’s initial fall from grace.

Do I have a price target?

Yep – $120 a share.

That’s the low put in on December 17, 2018 when the markets fell hard into the tail end of last year and a logical place for a pause as the elevator ride down continues.

From there, it’s anybody’s guess.

In closing, people ask me frequently why I haven’t recommended shorting Facebook stock before if my outlook is so negative and that’s a terrific question.

Every stock has its true believers and Facebook is no exception.

You’ve got to let the fanatics exhaust their emotional resistance and financial resources before you make your move. That way, you’ll have a far more direct path to profits because there will be less pushback.

I believe public trust has finally reached the tipping point just like it did with Tesla and Harley Davidson – two stocks we’ve spoke about recently.

Which means there’s king-sized opportunity to get in on the price action as Facebook comes unhinged, yet still be ahead of the curve.

Until next time,


4 Responses to Facebook is Running out of “Friends”

  1. Vaughn says:

    Great article on Facebook Keith! I’d dearly love to see them do a facePLANT, courtesy of their thought control police, who don’t want to see anysnowflake get maligned or impugned in any way shape or form. So much so, that they’ve banned me mulitple times for months at a time, for adding my two-bits worth at the back end of clickbait memes that I simply couldn’t leave alone.
    So finally, last month in Februaray, I permanently deleted my account, so let’s see Zuckerbaby sell that to his advertisers! Therefore, thanks for the put angle to ride him and his company into the dirt with!

  2. James Rash says:

    Keith, at the current price to buy the FB January 15, 2021 $160 Put (FB210115P00160000) LEAP, which is $20.65 (over $2000 for 1 contract), I would have to violate the (self-imposed) risk-limit on options trading on my account ($500).

    Is there a reasonable way around this, to take advantage of your FB recommendation?


  3. Affandy Rahim says:

    Thank you

  4. Ingrid Schor says:

    Great article and very well written. I bought 100 shares of Facebook right after it’s IPO and held on for the ride until this past summer. After debating many times after the stock “took off” to buy some more, I just didn’t. First, I didn’t use it. I didn’t like the very public forum but I’m older and of the more private mentality than the kids. But I noticed over the years how persistent and widespread FB really was. Just 18 months ago, I was wanting to take this photography course and my only option was to take it was via FB. I noticed how many sites I did not enter because you had to enter thru FB. I was put off but flattered to I guess on how many people requested me to be friends( work people). I just didn’t want to take the time to constantly get notified about new posts and pics and have to give thumb ups. It annoyed me. Still does because I can’t take this course without someone realizing I’m there and subsequently getting new batches of friend requests. Can’t we just be friends at work? But also now that I am registered with FB, I get e-mail that is interesting. But once you look at it, they can be pretty insistent about you liking them on FB! That’s why I sold at $178 and haven’t bought anymore. I am thinking seriously of selling in my Roth too as I manage it and my personal stock account. In my managed accounts that are conservative, they still have FB. I think I’ll have to check on that!
    Thank you, Ingrid S.

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