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Trade Alert: Locking in some 700% gains in my largest position

Hate to say I told ya so, but remember when I was the “only idiot buying $FB” (Cody Willard: Why I’m the Idiot Buying Facebook) back when it was below $20 a share? I do. I remember all that displaced hate and anger (Bring on the Facebook hate).

You know what’s funny? I actually just copied and pasted the prior paragraph from this Trade Alert – The single most impressive number from Facebook’s report that I wrote back on  January 30, 2014.

Facebook was at about $65 per share when I wrote that back in early 2014. And Facebook is now up $100 more than that, hitting $165 a share today. Facebook is now up more than 700% since I wrote this earlier Trade Alert for Trading With Cody subscribers back in 2012:

Trade Alert: Headlines and finally adding to this position published on Trading With Cody, September 12, 2012 by Cody Willard

I’m finally adding a new tranche of buying to my FB, adding just about 15-20% as much as I already own. I’ll be adding a little common and also to my January 14 calls with strikes about $30. More on FB below.

Not that Zuckerberg has recently said anything that you haven’t already read in my analysis about the potential for mobile and other monetization models, but I think we might finally be seeing this stock put in a bottom here below $20 a share at least for the intermediate term. Not going crazy, but as usual, just following my playbook and using a tranche system of scaling in to more while it’s down and finally seeming to be bottoming. I’ve been patient and haven’t added to this position since we first (wrongly) got long around $26 a share. But now I am indeed adding to it.

And how about Facebook? After a strong quarter and proof of accelerating mobile monetization, the stock is back down below $19 a share this morning, after having popped above $24 immediately after the report. FB’s long-dreaded lock up expiration is upon us and I’m to buy back some of the calls calls we sold after the blow out quarter over the next couple days. Looking at the June 2013 expirations with strikes from $20-22.

Cody back in real-time July 2017 now. Facebook’s market cap is now just about $500 billion. I remember how outrageous it was when I predicted back in 2012 that the stock would eventually have a $200 billion market cap…

How Facebook could get to a $200 Billion market cap published on Trading With Cody, July 23, 2012 by Cody Willard

So here’s that math I talked about before and how Facebook gets to a $200B market cap.  Their valuation right now is just under $70 billion.  Last years’s revenues were about $3 billion so that’s 22x sales, let’s say 20 for good measure.  Facebook says they have 900M monthly-active-users (MAUs), a 33% jump from the years before. So let’s say the prices/sale  multiple holds over the next 5 years, that would mean Facebook would need $10 billion in revenue to get to a $200 billion market cap. But let’s halve the multiple to 10x sales, so we’re looking for $20 billion in sales.  And let’s say that explosive MAU growth slows by a third to 11% for the next 5 years, that would give Facebook 1.5 billion engaged users. Divide that $20 B in revenue by the 1.5 and you get that at that depressed multiple of 10x sales, will anemic future user growth, if Facebook generates $13 in revenue per user per year, it’s at a $200 B market cap.

Let’s make that even simpler — that’s about four cents per day, per user.

Everything I just stated is the bear case, and about half what I expect to materialize, but generating 4 cents per user per day, by connecting engaged users with advertisers, is not that hard.  And if Facebook needs some time to evolve their strategy  or shift the thinking of advertisers and agencies to the mobile reality, good thing they have billions in the bank from the IPO.

No changes to my Facebook strategy, as I’ve already built it into one of my top 3 largest positions with lots of upside leverage via a wide range of longer-dated calls.

Cody back in real-time July 2017 again now. So…Facebook’s been very good to me, my subscribers and my portfolio — but I want to trim just a little more again now, selling about 5% of my FB shares, locking in some more profits.

And remember that I’m putting the finishing touches on my homework as I get ready to swing at another pitch or two — hopefully a couple more Facebook-like winners! I’m being patient as there are several names I’ve narrowed my list down to and am finishing whittling it now.

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