If You Can’t Beat ‘Em...
Jon is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Yes, you are about to read yet another article on Facebook (NASDAQ: FB). It’s funny how much people are still talking about them. They’ve gone from being the talk of the town for popularity and potential, to being the talk of the town for different reasons. Mainly, can Facebook ever become a more sustainable business?
I believe we all had our doubts on this issue when Facebook went public. Mark Zuckerberg has even gone as far to say that Facebook is not about making money (hard to make that statement with a straight face when you are in the country’s top ten wealthy list…). However, even with the doubts, many held out hope that they would figure out how to make the business-minded shift. Those hopes have been shattered with a dismal quarterly report and a mind-blowing $1 Billion Instagram buyout.
Nothing shows me, as an investor, that Mark Zuckerberg isn’t taking this seriously than the Instagram ordeal. It’s an app for goodness sakes, not a diamond mine. Unprofitable Facebook has taken its money and used it to buy something that is, well, not going to help profits. I’m not against buyouts. In fact, I would like to make a suggestion to FB management.
Make a REAL purchase
I’ve said it before, and I’ll say it again: LinkedIn (NYSE: LNKD) is overpriced. It’s has left the realm of priced to perfection; it is priced to ridiculous. You can read it yourself if you like (page 39), but allow me to save you the trouble: earnings were $0.15 per share in 2011. For a stock trading just north of $100/share I think you'll agree, it will come back down at some point. But, I’ll be the first to sing LinkedIn’s praises when it comes to running a business and turning a profit. Hat’s off gentlemen, good show. The profits just don’t justify the market cap.
I do expect LinkedIn’s stock price to come back down to our galaxy at some point. Even for being the high growth company that it is, I think a stock price around $50/share is more reasonable. If, LinkedIn’s share price would come down to reasonable, that would give the company a market cap of around $5.5 billion. And here’s my brilliant idea (which I’m sure other people have also thought of and wrote about…) Facebook should buy LinkedIn. They have the capital and shouldn’t think twice. (In reality, according to their quarterly report, they have enough assets to buy LinkedIn now, I’m just suggesting waiting until they get a better deal).
What I’m not suggesting is a full-on merger. Just make LinkedIn a “Facebook company” I’m sure Facebook could spend a little cash on a couple of computer whizzes to figure out how to integrate the two sites without completely merging them into one. With this system, Facebook wouldn’t have to figure out how to beat LinkedIn at their own game, they would just let them keep doing what they do best, much like how Disney (NYSE: DIS) bought out Marvel, but never made any changes to Marvel. Disney’s crew has said that Marvel wasn’t broke, therefore they didn’t need fixing. Facebook could do the same thing with a LinkedIn purchase.
Ok, I have to admit, Mark Z has a certain “it” factor about him. Being myself the same age as him, I think there’s something cool about a CEO who won’t conform and trade in his hoody for a suit and tie. It’s nice to see a guy be himself regardless of the position he holds. If we ever met, I feel like I would enjoy hanging out with him.
Unfortunately, as an investor, that doesn’t help me. Facebook was a great idea, and Zuckerberg got it to where it is today. But, whether he wanted to or not, he fundamentally forever changed his company when he took it public. He can never go back to Mayberry. His social networking site has entered the dog eat dog world of Wall Street. His hoody won’t get the job done.
Facebook, it’s time for Mark Zuckerberg to retire. He made a fortune; he’s had a nice ride, but he is not your man going forward. Don’t feel bad for him. He’ll find something to keep himself busy with for the next 50 years. It’s going to take him a lot of time to figure out how to spend all of his money.
New Sherriff in Town
So if Zuck goes, who is up to running the company? Remember the LinkedIn purchase I suggested earlier? Let the boys over there work their magic on making Facebook profitable. They have a proven track record. Now give them a real challenge.
Real leadership, is recognizing your weaknesses and then relying on someone who is strong where you’re weak to compensate for your deficiency. This is what the current CEO is not doing. He won’t take an honest look in the mirror and see he’s not the man for the job. Facebook needs someone, with proven CEO success, to come in and lay down the law to make investors happy, BUT this person needs to be careful to keep its users happy as well.
Only time will tell what the future holds for these two sites. With so much up in the air, I think in a couple of years we’re going to see something big impact this social sector, to which we’ll say “I never saw that coming.”
thequast has no positions in the stocks mentioned above. The Motley Fool owns shares of Walt Disney, Facebook, and LinkedIn. Motley Fool newsletter services recommend Facebook, LinkedIn, and Walt Disney. 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.If you have questions about this post or the Fool’s blog network, click here for information.