Tuesday, August 14, 2012

Netflix CEO Buys More Facebook (Nasdaq:FB). Is Facebook a Good Value? Or are Other Technology Companies Cheaper?

Netflix (Nasdaq:NFLX) CEO Reed Hastings bought 48,000 shares of Facebook (Nasdaq:FB) last week at a price of $21 per share. Hastings already holds about 20,000 shares, which brings his holdings to about $1.5 million.

Hastings currently owns $62 million of Netflix stock, and $5.4 million of Microsoft (Nasdaq:MSFT), so Facebook is not one of his larger holdings. Generally, an insider (like a member of the board of directors) is seen as a positive sign for a company's health. Insiders should know more than the general public, so if they are buying, perhaps they know some good news that might be on the way.

Does Hastings know something that we know? Perhaps, but that does not necessarily mean that Facebook is a good investment at today's levels... and certainly not at its IPO price of nearly $40. Since making their d├ębut on the market, Facebook has lost nearly 50% of its value. Once thought to be a $100 billion company, the shares are now worth about $40 billion.

Facebook is cash-flow positive to the tune of about $639 million over the last 12 months, but technology requires continued and significant investments in research and development to stay competitive... so the valuation has to be right to invest.

Facebook Cash Flows:

So what is a good value for Facebook? Most people have no idea! And that should be scary for any investor. Sure, it has about 900 million users... but how many will continue using Facebook? How many accounts are doubles or fakes? How many users actually click on the advertisements? How many new users will join once it is solidified as the social networking tool for old fogies that graduated from school years ago?

Are there other technology companies cheaper than Facebook? Google (Nasdaq:GOOG), Microsoft (Nasdaq:MSFT), Intel (Nasdaq:INTC), Oracle (Nasdaq:ORCL), Apple (Nasdaq:AAPL), Cisco (Nasdaq:CSCO), the list goes on and on and on...

Cheers and Happy Investing Intelligent Investors.

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