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FB Stock at Risk – Sell Facebook Before Earnings and User Declines

Facebook (FB) is set to report earnings on Jan. 29, and FB stock investors need to prepare for some bad news.

Facebook has seen slowing growth in its user base in key western markets, and there’s a very good chance that this earnings report could be the first to show quarter-over-quarter declines in Europe or North America — or both.

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The chart that I am most interested in from Facebook earnings in October shows total global users. Take a look and consider that from Q2 to Q3, U.S. & Canada users were up by an anemic 0.5% while Europe users were up just 1.4%.

These are by far the most lucrative regions for Facebook. About $962 million of Facebook’s $2 billion in revenue last quarter — or 48% — came from its U.S. & Canada segment.

This is not a good sign for the bottom line, and even worse for investor sentiment. Furthermore, FB stock continues to deal with pressures caused by teens tuning out. The company itself admitted that younger Facebook users were losing interest — something that even President Obama is hip to.

Sure, revenue per user metrics continue to point up. And fundamentally, that’s why investors continue to buy FB stock. After all, there are only so many human beings and 100% market saturation of the planet earth is a little naive … though I doubt CEO Mark Zuckerberg would see it that way.

But the question investors must answer in Facebook earnings at the end of January is whether revenue per user metrics can grow fast enough to offset declines in Europe and/or America AND provide growth AND provide that growth at a rate that justifies the earnings multiple.

Considering FB stock has roughly doubled since July, I am skeptical.

Besides, don’t forget the powerful sentiment overhang that will be created by headlines on every website trumpeting Facebook user declines. That’s surely not going to be shrugged off easily by FB stock investors — especially after we’ve been fed the narrative of fleeing teens for months now.

And bigger-picture, it’s undeniable the froth that exists in social media stocks after the Twitter (TWTR) IPO. The nosebleed valuations on companies from Twitter to LinkedIn (LNKD) to Yelp (YELP) should give you pause, and investors sitting on doublers or triplers in these positions should seriously consider trimming back.

I don’t own Facebook stock. But if I did, I would take my profits and run well in advance of Q4 earnings.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP

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  • Idiot Stock Manipulators

    Investor Place is like getting stock tips from the Mentally Retarded…This article says sell FB and next buy FB…You guys only produce self serving articles for your own nefarious reasons. Everything here has NO substance what so ever. Editor in Chief what a laugh…Couldn’t predict the weather if it was raining down on him.

    • bill

      If Investorplace sucks so bad like you say, why are you even reading it AND taking extra time to write comments about it?

  • snowden

    hahaha goodlock

  • Jerry Malinab

    Thi is great opportunity yes sell face book now….. it woul be a great earning stocks……..boom ops bbcode.. this is excitement… sell now…

  • Cramer

    What an idiot, weak argument but if Obama is hip to it ……well when has he been right about anything and base my investment decision off another bigger idiot?

  • IAMSuperPatriot

    Warren Buffet always said if you think a stock is a good investment, when the market sells, if you sell, you’re a sucker, if you buy the market is the sucker. This guy wants everyone with 100% profits to sell before 1/29/14 -sounds like sucker advice to me.

  • IAMSuperPatriot

    It’s an interesting argument: When the company was growing the teen base and not making money from them, it was a buy, but now that they are developing a business model which earns billions per quarter instead of catering to teenie boppers, it’s a sell. That doesn’t make sense to me. But hey, what do I know, I like companies that make money. Amazon is the number 1 retail site on the planet, no one ever talks about whether they are growing their teenie bopper lookie-loo segment. Facebook is a lot more like Amazon or Google than Ambercrombie & Fitch.

    • frank

      Your comment is more useful than this entire article.

  • weegoody

    Horrible article.

  • Zeb

    I will comment after 1/29/14

  • ian

    never,never a good idea to hold over earnings such as FB,TWRT, no track records really and if you’ve made some,its profits.allways get in later

  • Alleged Comment

    As usual all ideas are right with stocks, but the timing is seldom correct. Like a broken clock that’s correct twice a day, at least.

  • veritassemper

    super patriot – right on!!
    Remember, do your own research and track the stock. I didn’t agree with the IPO price – but at $18/share, where it essentially landed, it was a buy. Watched it for a year and then turned my head…lost that chance. How much will it climb? Like any other stock, watch and wait for trends and earnings..don’t listen to anyone.

  • insectg

    Mark my words…FB stock will hit $100 per share.

  • First

    What this article seems to completely disregard is the fact that the growth of the number of users of Facebook is not the key in understanding the potential revenue. The idea here is there is 1 billion people to reach out and market to and that is more than any thing else you can find in the world. Of course new users will plateau eventually, because there is only so many people that will use the service. Where Facebook will thrive is the ability to use there enormous user base for creating revenue which is still in the growing stages. Its no different than Google’s strategy give something away for free and then use the love of what you are to suggest products, and look where they are now. Sure Google has more breath in its products but does it does not compare to the number of people who look at their Facebook everyday. This article is sad to read because it looks makes me think the “editor and chief” is simply trying to drop the price of Facebook so he can get a piece.

    • Amie

      I think that’s exactly what he’s doing. It’s so obvious :(

  • http://www.interfaceplanet.com/citrix-web-interface.aspx Gray Smith

    Thi is great opportunity yes sell face book now….. it woul be a great
    earning stocks……..boom ops bbcode.. this is excitement… sell now..

  • egan

    He is wrong and has always been wrong on FB. Just search for his old articles – his assessments are ALL WRONG! Someone should fire this guy… seriously…

  • Trustatron

    This turned out to be accurate…