FB Stock: Why Analysts Are Dead Wrong About Facebook Inc

FB Stock
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Bad News for Facebook Stock (FB)?

With 2016 entering its twilight, analysts are reflecting on the surprises that this year had to offer. Brexit and Donald Trump spring to mind, but there are other stories as well; stories that concern Facebook Inc (NASDAQ:FB) and anyone looking at FB stock.

There were tales of faulty advertising metrics, drone crashes, and fake news stories.

Layer upon layer of bad news has stacked up on Facebook stock, leading some analysts to criticize everything to do with the company. Whether or not they know better, some of the attacks are just ridiculous. Worse still, the negative stories weigh on FB stock.

Let me give you an example…

Some analysts think that virtual reality (VR) is overrated. They claim that 2016 was supposed to be the year of VR, but that Facebook and others failed to deliver on those promises. This is just idiotic.

For one thing, no analyst can predict exactly when a piece of tech will reach its tipping point. Technological evolution is complex, and most often exponential, making it very hard to model. Thus, nailing down a specific time frame is a fool’s errand.

These analysts should know that, or at least they would if they looked at the history of technology. (Source: “The Intuitive Linear View versus the Historical Exponential View,” Kurzweil Network, March 7, 2001.)

Geniuses like Ray Kurzweil have written about this phenomenon. If you’re trying to get rich off of tech investing, don’t think about what the world looks like today. You must consider what it will look like tomorrow, a year from now, 10 years from now.

Kurzweil reminds us that technological progress is not “linear.” It is “exponential.” It’s like the oldest trick question: would you rather take $10.0 million in cash right now, or $2.00 and double it every day for a month? Most people would take the $10.0 million, but that would be a mistake.

If you double $2.00 every day for a month (let’s take a 30-day month, just to be fair), you would wind up with $1.07 billion at the end. Yes, billion with a “b.” Some people find that hard to believe, but math does not lie. Numbers do not lie.

The truth is, people are blinded by what’s right in front of them.

Like Kurzweil, I’ve looked back at the history of technological progress, and it’s plain as day: the growth of tech is “exponential.” Keep that in mind while you look at FB stock.

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When CEO Mark Zuckerberg bought Oculus VR, LLC for $2.0 billion, the technology was still in its early years. It had not seeped into the ether just yet, nor had it become commercially viable. This was the first year that regular customers could go buy their own VR headsets.

And many people did. Here’s a quick chart to give you a sense of how many people bought into virtual reality during 2016:

virtual_reality

(Source: “The holiday season seems to have given virtual reality a reality check,” Business Insider, December 1, 2016.)

Just so you know, Facebook manufactures both the “Oculus Rift” and the “Samsung Gear VR,” making it the most successful in the industry. However, analysts are worried about the downward revisions (the yellow bars) for “Playstation VR” and Google’s “Daydream.”

I’ve heard their arguments before: the lower-than-expected sales show that virtual reality is a failure. It was an interesting piece of tech, but not one that people want to spend their money on. (Source: Ibid.)

Like I said earlier, this is such an idiotic argument.

Virtual reality devices may be available, but content is not. There are only a handful of games and videos which are viewable on the devices, meaning they aren’t useful yet. But wait for the “exponential” growth in content, then we’ll see what the sales numbers look like.

Wait until an ambitious filmmaker makes a classic that’s only available in virtual reality, or until video-game developers sell accessories. The “exponential” gains are coming for both VR and FB stock, so don’t settle for what’s already here; think about what’s yet to come.


 

Editor’s Note: Hi, Gaurav Iyer here. If you enjoyed this article, you can get more of my opinions and commentaries in our popular daily tech letter, Profit Confidential. Published daily, it’s FREE! Join us when you click here now.