Facebook reported it’s Q4 earnings today. Its “NON-GAAP” earnings “beat” the consensus “NON-GAAP” estimates. As it stands, “GAAP” accounting standards have become an outright joke. The use of “NON-GAAP” reporting has transformed the entire accounting industry into an adult cartoon. “Beavis an Butthead” for corporate earnings reports.
Why even report financials? Why not just report NON-GAAP earnings per share? Feed the ducks what they want to eat. “NON-GAAP” translated into English means, “here’s our earnings if you exclude all the expenses we take every quarter that we consider to be non-recurring.” It’s income not including recurring “non-recurring” expenses. It’s an absolute unethical perversion of financial accounting – kiddie porn for Wall Street analysts and moronic institutional investors.
Based on today’s GAAP earnings and the after-market level of trading, FB trades at 78x trailing EPS, 16x revenues, and 36x cash flow (EBITDA). This is an insane level of valuation for a company with sales derived primarily from mobile advertising. I guess a fact that escapes most investors is that as the global economy sinks deeper into recession, the decline in consumer spending will accelerate and advertisers will cut way back on ad spending budgets. I’ll let you figure out what that will mean for companies like FB that derive their revenues from corporate ad spending budgets.
Perhaps even more confounding is the fact that the stock of AMZN, which reports its numbers tomorrow after the close, jumped $10 in after-hours when FB reported. I’m not sure why online widget sales would be correlated with the growth rate of the number of people who log onto Facebook, but it exemplifies the degree which the U.S. stock market has become disconnected from economic reality. (click image to enlarge)
Having said that, making money by trading irrationalities in the stock market is a big part of what my Short Seller’s Journal is all about. I deliver a weekly newsletter to your email with one long-term fundamental short-sell play and one or two “quick hit” trade ideas. The quick hit ideas are designed to take advantage of stocks which pop in price in absence of any true bona fide fundamental reasons. The textbook example of this is Weight Watchers. Just today in fact, the idiots on financial news tv were reporting how a tweet by Oprah caused the stock to jump 23% to close at $13.75.
What they didn’t tell you is that she pulled the same stunt right after Christmas – only stock after that closed at $23.05. I put this stock in my Short Seller’s Journal released on January 3 at $22.95/share. Subscribers who took advantage of this idea and held until Friday that week made 34% on their short position. The ones who played the puts I suggested made 600%.
SSJ is a monthly subscription with four reports each week. I include some fundamentals-based research, ideas for using puts and calls to replicate shorting a stock and capital management suggestions.
I am one of your new subscribers. I am a novice in Option trading field. I am just writing to let you know that I enjoy SSJournal and especially examples of how trading strategies could be executed, with actual described cases – to me that is the best way of learning. I think that is most valuable for me. Shorting companies symbols are, of course, very important to get one going in the right direction as well. – subscriber from Sparta, NJ