NEW YORK (TheStreet) -- I've received quite a bit of criticism over the past couple of weeks for some pretty bold earnings predictions -- some of which were colorfully described by one reader as randomly "throwing (you know what) to the wall to see if it sticks."It was much more sophisticated than that -- or at least I think so. However, I do realize that sentiment is often derived from the source of an existing bias. In other words, I'm a bum in the minds of those who disagree with my stock picks and a genius to those with whom I agree, regardless of outcome. Nevertheless, making the call is what it's all about.
On that news, the stock dropped as much as 5%. While 20% EPS growth would be cause for celebration at most firms, at Apple, that is just not good enough. But does it mean optimism was the incorrect play? By contrast, take Facebook ( FB), which has battled both fundamental and valuation concerns. In fact, no other stock on the market today represents "the game of numbers" better than Facebook. Its 955 million users seem to be enough to justify its high trading multiple, which remains more expensive than both Apple and Google ( GOOG). Upon its disappointing earnings results, the stock has dropped almost 20% even though it delivered somewhat respectable numbers. Admittedly, although we made the correct call ahead of the report, Facebook's numbers were actually much better than I projected. However, unlike Apple, Facebook (literally) had no business trading at its lofty valuation. If investors had focused on the underlying business, they would have been saved not only from the earnings disappointment, but also from all of the hysteria that surrounded its hype-filled IPO. Though Facebook demonstrated better-than-expected revenue and active monthly users, it failed to impress investors who have been waiting patiently for the company to prove that it deserves their money. Instead, what the numbers showed was what investors have feared during the past couple of months: that revenue growth has slowed. This happened even though it beat projections. Investors realized that Facebook's 32% sequential revenue growth was smaller than the 44% it generated in the first-quarter. While not an entirely disappointing number, it does (to some extent) support the notion that the company has yet to solve its user-monetization issue. Although its user base continues to grow, neither its earnings nor its revenue are growing enough to support its valuation. In Facebook's case, it's all in the numbers.
However, that is not so for others. One company in particular -- Amazon ( AMZN) -- continues to prove why valuation does not matter. Bears argue that the stock is expensive, but that has always been the case for Amazon. As perfect as the company must be to maintain its lofty valuation, Amazon continues to execute to perfection. In terms of reported sales, there aren't many companies of Amazon's size that are producing the level of growth it has demonstrated. As a result the stock is up 35% year to date and more than 170% in the past three years. Clearly, Wall Street cares very little about valuation in this case. Bears that want to continue fighting the Amazon story are doing it at their peril. It's a game of numbers.