Twitter’s (TWTR) Demise Was Predictable. Is Facebook (FB) Next?

Posted by on February 9, 2017 1:26 pm
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As of this writing, Twitter (TWTR) is down about 11% in the Pre-Market after the company reported disappointing results. Revenue miss, lower guidance, flat user base, declining sales, etc….

All of the above was predictable a long-time ago…. Here is what we wrote two years ago

Why Twitter (TWTR) Should Go On Your “Stocks To Short” List

Should it do so, I wouldn’t be surprised to see Twitter below $15 a share over the next 12-18 months.

Is it too late to short Twitter now? It is hard to say. As I have mentioned before, I don’t understand the service nor like it. I don’t think Twitter will survive in the form that it is today going forward. For all I know it can go to zero over the next 5 years.

With that in mind, I believe there is a better tech or social media company out there to short …..Facebook (FB) In fact, I continue to believe that Facebook is one of the best shorts out there. Shorting Opportunity Of A Lifetime?

And while most investors today will laugh at me when I suggest that Facebook (FB) will see $20 a share over the next 3 years, I will laugh back when it does. I promise. Here is why……

  • As discussed before, Facebook is massively overpriced. At its $390 Billion market cap, the company is now worth more than GE. At 10th the revenue base and a P/E of 65. I guarantee you, investors in Facebook today will look back in 2-3 years and wonder “What the hell were we thinking?”
  • It can be argued that most of the user growth will come from 3rd world countries. Per unit revenue should decline going forward. Western world users tend to consume more in advertising than people living in the middle of nowhere (Facebook’s free internet).
  • I am beginning to notice quite a bit of fraudulent activity on Facebook when it comes to likes, promotions, paid advertising, etc… That is firsthand knowledge, but you can Google the same and do your own research. That suggests the Facebook is running out of growth and its multiple is not justified. By a long shot. I wrote about it here Why Facebook Remains An Amazing Short Opportunity
  • See those massive gaps all the way down to $20 a share? Yep, they will have to be closed at some point.
  • We are on a verge of a multi-year substantial bear market. When such bear markets develop, if past is any history, such overvalued and over hyped stocks tend to lose 80-90% of their value. Just as the gaps above suggest. I don’t know why this time would be any different.
  • Short interest is low.

Finally, even at $20 a share, Facebook will be extremely overpriced.As always, TIMING is the key here. With that said, if you are willing to hold this stock short over the next two years while riding out all of the ups and downs, your gains on the short side should be significant