23/10/2014 18:32:24 Cookie Policy Free Membership Login

Facebook – Is Its Advertising a Fraud? Zuckerburg on the Ropes – Massive short sell Opportunity

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I wrote about an hour ago HERE that Facebook (NASDAQ:FB) stock would trade at sub $10 on Nasdaq by Thanksgiving and that this was perhaps the number one short among global “blue chips.” Uh oh. It just got better for me, worse for the monster Zuckerburg. Some start up in New York ( Limited Run) says that it is pulling its Facebook ads because it found that 80% of those page impressions it was paying for on a click per basis model were in fact from bots (computer programmes) not people. Facebook says that it is investigating. Right. The bottom line is that those earnings models Wall Street analysts cooked up to justify the $38 IPO are just horse-shit. This stock is heading south fast.

I am sure that there is a very good explanation for Limited Run’s issues. I look forward to hearing it. Limited Run probably spent little with Facebook so the near term impact is trivial. Medium term it will be, I suggest, disastrous. I offer you two multiple choice questions.

1. You are an existing advertiser with Facebook, do you

a) Go to your boss and say, let’s ignore Limited Run’s claims and either maintain and increase your ad budget?
b) Look at your historic returns and consider a lawsuit to get some or all of your money back?
c) Pull future advertising now until the dust settles so that your boss does not have a reason to fire you if it emerges that there is a problem

2. You do not advertise with Facebook but have a new media budget. Do you

a) Go to your boss and say that he should not worry about Limited Run’s claims and all the dire press Facebook is getting or that revenue per user is falling (because other advertisers are as a result of poor returns, not increasing their spend) and back this company because you believe in it?
b) Wait until the dust settles and when Facebook is desperate screw it on rates
c) Wait until the dust settles and not use Facebook at all.

Now my guess is that most folks do not like looking like schmucks in front of the boss, being seen to spend lots of money with a company that has not delivered great returns because most of its “customers” have minimal disposable income and may in fact have no income as they are not human beings at all. Given the tendency of humans (I cannot speak for bots, they may view life differently, you’d have to ask the monster Zuckerburg about that one) to wish to de-risk their careers, I would say that a) is the wrong answer to both question 1 and 2. Anyone forecasting massive revenue growth for Facebook (i.e. all those highly paid Wall Street analysts) has to assume there are a lot of answer a’s in their model.

What do you think?

For now my target price is $7.30 with $10 being seen by Thanksgiving but at this rate it might just be by Labor Day ( that is September for those, as Mitt Romney would say, based in a small island that would have been conquered by Hitler had it not been for the English channel). Facebook shareholders should sell whatever stock they have and then go short to get their cash back.

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