Will Facebook Like The New Reality?

Within days Facebook™ will announce their earnings report. However, since their last reporting a new reality has appeared and many of its investors may require a pair of those new virtual reality headsets to parse what Facebook believes is reality: and the reality Wall Street wants. i.e., Where’s the money?

Wall Street (or the markets in general) is notorious for turning once heralded “wonder boy’s” during the IPO process – into just plain “boy’s”

One thing is very different for Zuck and crew this earnings cycle than any previous reports. With the departure of Ben Bernanke and his steady hand at the bubblicious printing press, along with a market currently left confused on whether Janet Yellen will indeed ever turn back on the bubble machine. It’s quite possible many of today’s “disruptive agents” will have more gum on the soles of their shoes than they’ll find readily available via QE to repair bubbled market caps.

When earnings begin missing, or lose their former narrative against earlier business projections, all hell can break loose. Regardless if one can manufacture a “beat” via non GAAP or not.

When money tightens clarity of vision becomes acute. And it’s becomes quite apparent that a bubble has, or is about to burst when, “Hey that sounds great!” is incessantly followed with “But where’s my money?” In bubble times you only hear the former. When the bubble breaks: you can’t get away from the latter.

Remember when it was touted not that long ago (is 24 months too long? but I digress) that Facebook was the “only” place to be for users around the world? The domination for interactions amongst teens would not only build its user base, but solidify long-term loyalty to the platform for years to come. Until they didn’t.

It’s been widely reported teens (once a heralded metric of eyeballs to sell advertisers) were leaving Facebook in droves. So what’s a company to do? Well, buy the company they’re all leaving you for of course. Regardless if its profitable. For in an age of hot money seeking anything, and everything: profits be damned.

Much can be explained away with a growth narrative. Again: You buy the narrative and real profits be damned. Leave the pesky detail of making money to the spin doctors. (otherwise known as financial media.)

So with the user narrative seemingly in place (a metric for many that can make or break the story line) one just can’t help but wonder why during the most recent earnings call this metric wouldn’t be shouted from the rooftops. For as reported in the Washington Post: “Executives on the earnings call didn’t offer specifics about how young people are using the networks — in fact, the company said there was no new data to report.”

Really? I thought this was a growth company, not a legacy. I would expect that from the likes of Cisco™, Microsoft™, or wait…..AOL™? Maybe their new user “likes” are in the “mail?” Too soon for such comparisons? I don’t, but I do have a habit of being early.

Follow this with the stunning purchase price awarded to acquire WhatsApp™.

Remember that little gotta have company Zuck and crew shelled out some $16 BILLION dollars for in a near overnight decision and execution? I guess when you gotta have something, you gotta have it. Regardless if its making a profit to warrant such an acquisition, For again, we’re talking narrative here.

And in a world dominated by free money via the Federal Reserve: a virtual reality can trump true reality anytime, anywhere. No special headset required.

But they should have everything integrated, assessed, and running like a Swiss clock by now correct? I mean that was way back, we’re talking February of this year. That’s nearly 90 days. Well, at least they have the excuse of “the weather” for any missed expectations. Everyone else used it – why not them?

The funny thing is one would think there’s enough there alone to give any investor the jitters as to wonder, “What is going on in there?” But (and it’s a very big but) the hits just keep coming. Like a teenager that stole their parents credit cards, this buying spree I contend can make most Millennial hackers blush.

Forget WhatsApp and the exorbitant price tag paid. Forget Instagram™ and the need to fence in user abandonment. At least for good or ill the business narrative one could put into context. (even as far as one had to stretch their imagination to do so)

However, how in the world does the board along with Zuck himself conclude it’s a good idea before they get even one – just 1 – earnings report under their belt to help alleviate and answer concerns about the decision process of spending over $16 BILLION dollars on a company most investors outside of Silicon Valley knew even existed, to spend and acquire even more?

I’ll wager many investors didn’t respond with, “WhatsApp? What’s that?” It was probably much more in line with, “$16 BILLION?  WTF is up with that?!”

Then, just weeks later, Facebook announced it had purchased the maker of a virtual reality headset maker known as Oculus VR Inc. for a neat $2 BILLION.

What’s $2 billion anyways when you’re talking about the future of the next big thing for social as reported by The Guardian™,  “Mark Zuckerberg says Facebook is getting ready for the platforms of tomorrow – and that virtual reality will be the next social communications platform”

That’s fine I guess, unless you have yet to prove and answer why the $16 Billion you just spent on the social platform of today is working out and generating profits. Profits that can be dispersed as rewards to deserving investors. Or is this why a new reality appendage was really needed? i.e., For the conference call participants.

What just might be more troubling that puzzling is the near immediate purchase of yet another company seemingly unrelated to “social.” The purchase of a drone company named Titan Aerospace.

It’s reported this purchase was only $60 Million dollars. Mere chump change to today’s Silicon Valley hacker elite. (probably found between the cushions in the employee lounge)

It is said this technology is to be at the forefront of providing internet connectivity around the globe to places currently inaccessible. Call me crazy, but when I hear the word “drone” the first thing that comes to mind isn’t: people helping people. It’s more in lines with: people helping to paint bulls-eyes on people.

If I were on a conference call, and I heard the company I was analyzing state, “Oh and by the way – we now have drones.” My next thoughts just might be, “Do I really want to put this company into a Sell recommendation today? But that’s just me.

Then on April 1st, what do I see flash across the financial media? Facebook buying another seemingly unrelated, unprofitable company at a price tag that would shock even a Pentagon procurement agent? Nope.

Just 22 days prior to Facebook’s earnings report (you know, the one where they have to justify all the above for the first time ever!) none other that the COO of the company Sheryl Sandberg sold half, yes – half of her shares in the company she runs.

Not 10%, not 15%, no not even an amount usually used to quell naysayers or skittish investors followed with the much maligned anecdotal “for the sake of paying taxes.” Nope, half.

Now what does that say for a supposedly purported growth company where the upper management is selling? One would think the exponential growth opportunity all the other investors are urged to patiently wait for that they themselves would be waiting for also. You know like that old saying: “In for the long haul.” Well I guess 2 years is an eternity in today’s Silicon Valley elite.

I don’t know about you, but when I see the top brass seemingly implementing their exit strategies, I’m looking for mine. And anyone with any business acumen will tell you, when people within the management are selling – you had better be selling also.

For Ms. Sandberg to sell at such a time, and in such an amount, knowing full well the innuendo and the appearance something like this has along with all the trappings such a move would bring, (again, with the timing) one can’t help but think if the April fools joke is going to be on those left holding their investment.

It may become more clear that the virtual reality coming over the horizon, looks a whole lot more like true reality for anyone who dares to look.

Without the need of any special appendage.

© 2014 Mark St. Cyr