7/27/2012
By David Urani, Research Analyst

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How many times have you walked into a Starbucks and seen someone with their laptop in the corner on their Facebook? Maybe those folks are a dying breed, I don't know but we're certainly seeing a stunning FaceBucks faceplant today.

For Starbucks (SBUX), it's a story we've seen several times this quarter. A fundamentally great company sees a deceleration in demand and WHAM, all of a sudden that premium stock price doesn't glitter like it used to. Starbucks missed by $0.02 on the bottom line, posted in line revenue, and lowered its full-year guidance to below consensus. What we saw was a sudden leveling out in comparable store sales; seems people aren't quite so hot to pay up for those fancy coffee-like concoctions every morning anymore.

The good news is I think Starbucks' management has lowered the bar enough with its outlook that there shouldn't be much further downside for this stock, and it stands a more-than fair chance of beating its guidance down the road. The stock is down more than 10%, but note that it's still got an optimistic 20.5 P/E.

And what can I say about Facebook (FB)? I think everyone knew the expectations for this company were way too high from the get-go. It actually beat on earnings by $0.01 and $1.18 billion revenues were slightly above the $1.15 billion expectation. But for a hype stock like this, the slim outperformance leaves a bad taste in one's mouth.

Here's the deal, revenue was up 32% from last year on the back of an equivalent gain in daily users. The problem? Adjusted profits were flat ($493 million versus $469 million). Operating margin was down to 43% from 53%. Those ads just aren't going for as much as they used to. And by the way, that 32% growth really isn't that impressive for a supposedly high-flying and developing tech company; it's also a significant deceleration compared to last year. FB is at new lows below $25. Trading at a P/E of 37, perhaps the market is even still too hopeful on this one.

David Urani
Wall Street Strategies