Considering Facebook As A Tax Loss Sale

One of the most viewed stocks is Facebook (FB). From its peak shares are down 42%, but up nearly 50% from its 52-week low. With just a few trading days remaining for tax-loss selling for 2012, investors need to consider exiting their position on Facebook. There are three things to consider.

Valuation

Facebook rallied from the teens first reached in September 2012. Since proving to the market that its new projects could grow in revenue, Facebook now has a Price of Profitability of 67. Investors still nervous about its valuation have a reason to be worried: advertising spending could moderate in 2013. Rising income taxes and lower government spending in the United States will make it difficult for the company to sell more ads.

Instagram

The immediate uproar over Instagram’s change in its Terms of Use (“TOU”) reminds investors that the company will have difficulty monetizing its most valuable products. After Instagram changed its TOU to give itself the rights for advertisers to use its photos, the company reversed its position. The company initially gave itself the right to share user information with Facebook, outside advertisers, and affiliates. The only way for a user to opt out was to delete the account.

$1 Messaging

To boost revenue, Facebook is testing the effectiveness of charging users $1 to message users not connected to them.

Analysis and Conclusions

Facebook is treading on a high level of distrust with its users. This will limit enormous revenue growth potentials for the company. As Facebook keeps looking for ways to grow at levels seen pre-IPO, investors are holding on richly-valued shares. The three things mentioned need to be considered. Investors should decide if shares bottomed, or if the rally was temporary.

Business Section: Investing Ideas

Facebook, LinkedIn, and Yelp are the most popular companies in the social networking space:

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