Why Facebook Execs Are Ditching the Stock

Stephanie is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Following news that the social media site's shares had fallen nearly 20%, Facebook (NASDAQ: FB) insiders began selling off some of their own shares, including famed COO Sheryl Sandberg. Just last month, Sandberg boasted about how far the company had come since its IPO last summer. So what has investors so skittish?

The MySpace Curse

In 2006, MySpace was the darling of the Internet, passing even Google to become the most popular website. By 2009, the site had taken a drastic nosedive as consumers fled the site in favor of Facebook. Because of this jump, naysayers have long concluded that Facebook will eventually suffer the same fate.

In its most recent earnings report, Facebook slightly exceeded revenue expectations, announcing $1.46 billion in revenue for its first quarter.This number was up 38% from a year ago, attributed primarily to CEO Mark Zuckerberg's increased focus on mobile advertising revenue.

As of 2013, Facebook is still the reigning social media site. For a while, analysts suspected Google (NASDAQ: GOOG) might be able to steal some of those users, but at last count Google+ had only 500 million registered users, half the number of Facebook. Yet Google's stock is valued at nearly $900 a share. Granted, this is largely due to success in other areas of its operation, which begs the question, is Facebook's sole focus on social media to blame for the stocks struggles?

LinkedIn Pays Off

Perhaps a better comparison would be LinkedIn (NYSE: LNKD), which has advanced in popularity as both a business networking and job search tool during the country's recent economic troubles. The site's popularity has grown exponentially over the past couple of years, now boasting 225 million users across the world.

Although LinkedIn's membership base is only a fraction of Facebook's, the professional social media site's stock is nearly $200 a share. LinkedIn has performed well over the past year, the company's first quarter revenue was up 72%, a total of $325 million. So what is LinkedIn doing that Facebook isn't?

One major difference is that LinkedIn operates on three separate revenue streams: talent solutions, marketing, and paid subscriptions. While Facebook relies solely on advertising revenue, LinkedIn had $67 million in sales from subscriptions in its last quarter, making up one-fifth of the company's total sales for the quarter.

Google+ Gaining Ground

Although Facebook still boasts the most users of any social media site, Google+ is proving a formidable opponent. Recently, the service surpassed Twitter to become the second most popular social media site. If membership numbers continue to multiply, Facebook may have more to worry about than executives selling off shares.

As Facebook kicks Graph Search into gear, analysts are wondering if the site has what it takes to make it as a profitable business. While the company is newer to the market than LinkedIn and Google, the stock still hasn't managed to catch on with investors. The problem with Facebook is that it seems to have no realistic plans to implement additional revenue streams.  Until it can come up with something that will move the needle, it is a speculative investment at best.

Foolish final thoughts

LinkedIn, on the other hand, is doing well at capitalizing on what it does best: helping people succeed in their chosen industry. As fun as it is to interact with the high school homecoming queen and Aunt Judy in Minnesota, LinkedIn helps people bring in money to pay bills. However, with shares falling recently, analysts are beginning to speculate that the company's upward trend may be slowing.

Meanwhile, Google shareholders are excited about the possibility that the stock will reach $1,000 a share. With its social media model gaining ground on Facebook, investors may be rejoicing that price-point sooner rather than later. 

It's incredible to think just how much of our digital and technological lives are almost entirely shaped and molded by just a handful of companies. Find out "Who Will Win the War Between the 5 Biggest Tech Stocks?" in The Motley Fool's latest free report, which details the knock-down, drag-out battle being waged by the five kings of tech. Click here to keep reading.

 


Stephanie Faris has no position in any stocks mentioned. The Motley Fool recommends Facebook, Google, and LinkedIn. The Motley Fool owns shares of Facebook, Google, and LinkedIn. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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