Analyst Seriously Discounts Teen Usage Concerns on Facebook

Facebook, Inc. (NASDAQ: FB) may have a problem down the road if its teenage user rates do not start to normalize. Or will it? The answer depends upon whom you speak to on this matter. Sterne Agee’s Arvind Bhatia and Brett Strauser sent out a post-earnings note for the social media group addressing what seems to be lower and lower usage among teens.

If you watched the post-earnings reaction in Facebook shares you might wonder if teen usage rates are worth anything at all. To be clear, Sterne Agee still has a Buy rating and a $70 price target. Shares even hit a post-IPO high on Tuesday.

The Sterne Agee team’s note is “Teenager Engagement on Facebook” and addresses an article in eMarketer on Tuesday which was titled “Are Teens Really Unfriending Facebook?”

Their aim is to put the issue of teenager engagement in perspective. The key conclusions mentioned in the article were that Facebook has more than 95% of teenagers that use social networks. They also noted, "It's not so much that Facebook is losing teens as that it's losing the exclusive power to define what social networking means for them… While Snapchat, Vine and Instagram (owned by Facebook) may be attracting teens, the all-important fact is that Facebook is still far and away the largest social platform and mobile app used."

eMarketer said,

“A brand is in a tricky position when it has no place to go but down. Given its must-have status among US teens in recent years—eMarketer estimates 95.9% of social networkers ages 12 to 17 used Facebook in 2013—that's the position Facebook finds itself in, according to a new eMarketer report, US Teens: Sizing Up the Selfie-Expressive Generation… And there are indications it’s vulnerable to a downturn."

Again, Sterne Agee’s research note is keeping a Buy rating and a $70 price target. The team has earnings estimates of $1.32 per share for 2014 and $1.70 per share for 2015. The Thomson Reuters consensus earnings estimates are $1.25 per share in 2014 and $1.68 for 2015.

The long and short of the matter is that Sterne Agee’s team here is looking for above-consensus earnings estimates. If teen use is a problem, they are discounting it almost entirely. Facebook’s stock price was up 2% at $64.86 right at the close of trading on Tuesday, and the stock hit a new all-time high and post-IPO high of $65.00.

A New Strategy for Smart Tech Investors

Leading newsletter publisher Investing Daily is launching a new publication today; Jim Pearce walks us through the strategy behind Smart Tech Investor, highlighting how its indicators determine over- and under-valuation in the sector.

Steve Halpern: Investing Daily is known for some of the advisory industry's most popular and long-running newsletters, including the flagship Personal Finance, and we are here today with Investing Daily's Wealth Society director, Jim Pearce. How are you doing today?

Jim Pearce: Great, Steve. How are you?

Steve Halpern: Very good. The timing of this interview is no accident, in fact, today is the launch of your latest newsletter, Smart Tech Investor. First, can you give us an overview of why you have chosen the tech sector for this latest product launch?

Jim Pearce: Sure. Actually, there are several reasons; one, of course, is that there is an awful lot of interest in tech stocks at the moment.

A day does not go by, it seems like, to me at least, when I am driving in to work, that I do not hear on the radio the latest news on Facebook, Yahoo, Microsoft's search for a new CEO, Twitter's IPO, I mean, it is just all over the news.

A lot of our subscribers have been asking about it. In fact, earlier this year, we began an interview series with a tech sector expert, originally with the intent of just providing some additional coverage for our Wealth Society members.

Over the course of doing that interview series, we realized we had a huge asset in the person of Leo Boeckl, and we wanted to be able to continue to help our subscribers invest better in the tech market. A couple of months ago, we decided to launch a new publication based around his kind of unique approach to evaluating tech stocks.

Steve Halpern: Now, in analyzing stocks, you use a proprietary valuation model that he developed called the BIQ. Could you briefly explain how this works?

Jim Pearce: Sure. The BIQ is spelled B-I-Q and it stands for Boeckl Innogration Quotient, and, of course, Boeckl is Leo's last name.

Innogration is a term that no one knows, because Leo invented it, and I will explain what that is in a second. It is really a model that puts a numerical value on each individual tech stock we cover, based on the three specific elements of Leo's approach to evaluating tech stocks.

Implicit in that is Leo's theory of innogration—and innogration is the combination of the two words, innovation and integration, and, in simplest terms, it is based on the idea that the leading tech stocks of today, and in the future, are those that not only innovate internally, but also use their resources to acquire functionalities from external sources to create a market-leading product.

He has identified three specific variables that contribute to successful integration and assigned a numerical value to each of those, so that the total value, it is a scale of zero to ten, so the highest the company could score, if it is was perfect in every category, is a ten and the worst, of course, is a zero.

I can tell you there are no zeros or tens, but there are some companies that are down in the one to two range, and there are some others that are up in the eight and nine range.

It is a very useful tool in sifting through all the noise in the market to really zero-in on those companies that, not only are popular today, but will be the market leaders in the future.

Page 1 | Page 2 | Page 3 | Next Page The expert featured in this column, James Pearce, may or may not own positions in any investment vehicle mentioned here. The views and opinions expressed are his or her own.