All That is Wrong With the Social Networking Giant
Ashish is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Facebook (NASDAQ: FB) is at around half its original IPO valuation now with the investors not taking the stock seriously. And we can’t blame them as it’s not a business model that can’t be replicated, nor is it a place where people come to buy products and spend money. We believe that advertisers can save advertising dollars and get more targeted audience if they try out options like Google (NASDAQ: GOOG) advertising which displays advertisements to the users by relevance rather than demographics.
What makes Facebook so different from Myspace, Geocities and Friendster? We say nothing except the global networking factor and maybe that Facebook is an IPO. But we believe that it is nothing that a new social network cannot cope with. While Google+ lost its war with Facebook, it showed how your friend circle could simply get transferred to another network in a blink of an eye. How a simple friend transfer application from Gtalk might do the work for you if you wanted to switch to a “better” platform. People say Facebook is not going to lose its space as “Facebook is where your friends are.” Bulls make a mess of a conclusion out of “networking effects.” We ask what do the networking effects mean when people get bored. Your friends move elsewhere, you move elsewhere. We saw it when Facebook overpowered Orkut, Myspace, Friendster with its new form structure and there is no reason as to why we won’t see it again. At that time all the three could have talked about “networking effects.”
Google+ was received with much anticipation. Why? Because users were getting bored from Facebook. Why didn’t it work? Google just gave users another Facebook with some tweaks here and there. We believe that Google could have done a little more giving a whole new form factor to Google+ but we were disappointed and so were many of the Facebook users who were waiting for an alternative. Furthermore, according to a recent survey of consumer satisfaction conducted by ASCI, Facebook had the lowest customer satisfaction rating among internet social media services like Google+, Pinterest, Twitter and LinkedIn (NYSE: LNKD). While we are not being conclusive due to this survey, we believe that Facebook has started seeing the signs of increased monotony among its user base. We believe that there is an increasing risk of the “cool” factor going away from Facebook overtime. Technology is “fickle” and much more “fickle” are the young users of Facebook who make a major proportion of the total user base. We would not be surprised to see another social networking platform gaining edge as Facebook loses its “cool” factor.
Advertisers have already started shifting to other platforms as they start to see minimal effects of Facebook marketing on their underlying business with the users coming with an entirely social mind-set. This was shown as General Motors (NYSE: GM) moved away from Facebook citing its reason as Facebook having a little impact on consumers' car purchases. With the advertisers moving away from Facebook to better targeting platforms, we might see further downside to the stock in the near term. Adding to the woes for a Facebook investor is the fact that Facebook has already reached the lockup expiration period which could increase the supply of Facebook shares with ~ 271 million shares that could come into the market. We have noticed in the past the negative effect that Lockup expiration could have on company stocks as LinkedIn dropped around 12.7% in the week prior to the expiration date and 5.9% in the week after the expiration date. We won’t even talk about mobile monetization now as Facebook has already lost its window of opportunity with third party manufacturers taking advantage of Facebook lateness in mobile by making their own Facebook apps.
As Facebook prospects look weak in the future with weak fundamentals, we would rate this stock as a sell.
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