Hoping For Some Negative Facebook Press

By: ispeculatornew
Date posted: 07.08.2011 (5:00 am) | Write a Comment  (3 Comments)

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Facebook has been without any doubt the most attractive investment in my opinion in a very long time and I’ve been very vocal about it. It has a business model that is transforming the web in a similar way to what Google did when it came along. The company has an incredible number of users and brands have been fighting hard to get visibility on the social network. However, one major problem is that buying Facebook shares is not easy. As a private company, Facebook shares are only available on secondary markets (only possible for qualified/high net worth individuals) or through very indirect investments as I had written about. Because of that, many including yours truly have been anticipating the IPO which continues to be expected for Spring 2012. That seems far away but it might not be the worst thing.

Valuations Getting Out Of Hand?

I would not say that it is a bubble mostly because those are so difficult to predict. However, recent IPO’s by LinkedIn (LNKD) and Pandora (P), two companies that are very interesting, attracted incredible valuations. As much as I like LinkedIn, its earning power is very small when compared with Mark Zuckerberg’s empire. If LinkedIn is now trading at a valuation of over $6 billion, I don’t see how Facebook would consider going public for less than $150B… It’s way too high. Pandora is perhaps an even bigger aberration as the company has not even proved it could become profitable and does not expect to become so in the next 18 months. What all of this means is that Facebook shares would be insanely expensive if they started trading on the markets tomorrow morning.

What I’m Hoping For

There are several things that I would like to see happen in order to make Facebook a more affordable.

Decline in tech valuations: Seeing companies like LinkedIn and Pandora have their stocks decline would be very helpful in order to make Facebook’s offering more affordable.

Flood of new IPO’s: The recent arrivals of Linked, Pandora, Yandex as well as anticipated IPO’s by others such as Zynga give more choice for investors looking to buy internet stocks and hoping to find the next rising star. I would argue that Facebook is unique enough for that not to matter but it could only help. That would be even more true if investors can get burned by buying shares of these overpriced stocks and suffer losses.

Decline in the Facebook hype: The company is all over the press and that might become much worse in the coming months as its IPO continues to approach. I don’t see this happening so it might be wishful on my part to even mention this.

Competition: Social websites such as MySpace, Friendster and Digg were once dominant players as well. Things can change rather quickly and while I do not expect any such thing to happen to Facebook anytime soon, it remains a possibility. The recent launch of Google+, which is still in beta testing could provide some level of competition.

The Final Thing I Need

Negative Press/Analysis: This is something I’m counting on. While some recent news has come out about Facebook now being the top display ads website and being the #3 online advertising player (soon to pass Yahoo for #2), there have also been some more negative reports about slowing traffic, losses of users, etc. I would also expect that at some point, there will be a lot of talk about the “limited growth potential” of Facebook. If it is now past 750 million users, how many more can it gain? It would be very short sighted as there are so many other things that can be done to expand activities and increase revenues. I do still expect (and hope) to see this point starting to be raised increasingly.

Fingers Crossed

I’m hopeful that some of these conditions can change to make Facebook a decent buying opportunity.

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3 Comments

  1. Comment by Sustainable PF — July 8, 2011 @ 7:36 am

    Some negative press …

    One of these past few months FB actually lost more users then it gained. People are quitting (like I did). They’ve seen the pics of their high school “friends” and realized they stopped talking to those people for a reason …

    Also, Google is now in the game with Google+. FB has real competition now. Even a fledgling endeavour can threaten it if the competition sports the BIG G.

  2. Comment by IS — July 11, 2011 @ 6:16 am

    @Sustainable PF – So where do you see Facebook one year from now in terms of users and power?

  3. Comment by Bret @ Hope to Prosper — July 18, 2011 @ 5:05 pm

    In other news, MySpace just sold for $35 million.

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