Will Facebook Die a Slow and Painful Death?
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Facebook (NASDAQ: FB), the most beloved social networking website, touches around 955 million lives. Tracking our crushes to stalking our exes, bugging a friend to poking a stranger, fixing a date to spreading of grapevine all are in full swing now, thanks to Facebook. The social networking behemoth had been relishing its fame and basking in its glory for a very long time.
Facebook's initial public offering and its subsequent stock-price tumble has been the subject of so much of criticism, outrage, controversy, altercation and ridicule that to add anymore is just to pile on.
Wait for a few more days and you will know that the pain of Facebook is far from over. The reason we say this is that Facebook is still overpriced and it is about to be hit by a tsunami of shares to be floated in the market. The company has been losing enough capital on account of insider selling, and the share prices fell from $45 to $18.75, now in the range of $19-$20 for the past few days.
*Source for the image: http://www.nasdaq.com/symbol/fb/interactive-chart?timeframe=5d&charttype=line
Even as we force ourselves to believe that the Facebook price is stabilizing, we foresee a bigger downfall ahead. Around 247 million shares—more than 10% of the company's outstanding shares —will be available to be sold in October and early November. But then that’s not all.
According to WSJ’s reference to a report by SNL Kagan, another 1.24 billion shares will be added to the float and hit the market as their lockups expire, on Nov. 14. So we can say that around 70% of the company’s shares outstanding as of Aug. 27 will be free to be sold by November.
But then from an investor's point of view, the shares that are being flooded into the market are not the only concern. Even though the share prices have been discounted significantly post its IPO, Facebook is still trading at more than 60 times trailing earnings and 30 times forward earnings.
One can also argue that Facebook's fate may be radically different. It may be possible that the shares don’t flood the market or that the company may exceed expectations for growth and impress the market at the end of the third quarter. However that seems to be doubtful, given the company’s current situation wherein it is struggling to maintain its growth rate. Also it may be hoping against hope to think that the 1.5 billion newly freed shares won’t hit the market. It would be difficult for the employees to hold on to the stock when a board member and respected investor such as Peter Thiel sold off the majority of his stakes.
When we speak about Facebook’s downfall, losing investors’ confidence is not the only reason that comes to mind. There are other factors that could lead to the death of Facebook. One such factor is the intense competition it faces in the social networking arena. Google (NASDAQ: GOOG) has been working relentlessly to boost the popularity of its social networking product Google+. Though Google+ has been around for quite some time now, its popularity never gained much momentum. But now Google has come up with new features for Google+ to challenge other rivals that include Facebook and Yammer.
Enterprise Social Networking (ESN) is a major enhancement to Google+ to make it ready for corporate social networking. With features like cloud mailing, micro-blogging, privacy control, document sharing, hangout and calendar integration Google+ will pose a great challenge to Facebook and Yammer in the corporate social networking arena. Other features include birthday reminders on Google home page, slider function, custom URLs, etc. If marketed properly to capture eyeballs these features will pose a threat to the very existence of Facebook.
Will Facebook wake up before it is too late? Will its top management come up with strategies to save their sinking ship? Or will it die a long, slow and painful death? Only time will tell!
If you have any views in favor or against the downfall of Facebook, feel free to write them down in comments section.
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