Facebook IPO - my thoughts

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DISCLAIMER: I do not have a license to give financial advice, so the following is my opinion only and should not be relied on as advice to invest, or not in Facebook, or any security listed on any exchange anywhere in the world.

As Facebook relies on advertising for its revenue, there are a number of risks involved. The first is that the internet is still an evolving platform. The chances of Facebook being the number one website in the world in 2020 is highly unlikely (anyone remember MySpace, Geocities or any other "big thing" of the last decade?).

Secondly the growth of mobile technology limits the number of ads that can be shown on mobile devices.

Thirdly, GM, a major advertiser has just stopped using Facebook as a marketing platform. I expect other "big boys" to follow suit over time. There aren't really enough "big boys" to replace the ones that leave.

Fourthly, given the current ructions in the Eurozone, the IPO could not have been more badly timed.

Fifthly, the market demands that revenue grows from year to year. There are only three ways that I can see that Facebook can do this:

1) Increase the amount of advertising. This is a sure fire way to p1ss their users off. Especially those that use FB via mobile devices.
2) Increase the number of users. As Facebook is banned in China, growth in this way is limited.
3) Charge users to use the site. A sure fire recipe for losing users and destroying its worth.

Current shareholders may be able to "stag" a profit, however over the medium and longer terms, I believe that a lot of people will lose money if they jump in early and pay a high(er) price for shares.

As I said, I'm not a financial adviser, and am quite happy if I'm proven wrong on any or all of the points listed above.

By proven wrong, I mean by the market and FB's own performance in terms of share price and earnings growth.

There are probably plenty of people on this forum who will disagree with my assessment, however their opinion does not constitute proof I'm wrong.

Only the company and the market will do this, and over a longer time frame than FB's first day as a listed security.

All that aside, other people's assessments are welcomed.

What do you think?
  • Profile picture of the author TG12
    By September you will be lucky to get $15 for that stock!
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  • Profile picture of the author garyv
    I think that Facebook's infrastructure is going to keep them from being the the next fading fad. The software and integration that they are creating for mobile products and other websites is going to keep them in the game for a very long time.

    If you go to Alexa and pull up the top websites - I guarantee you that over half of them have direct links with Facebook. Some of them are on that list as a direct result of their relationship with Facebook.

    Right now there are a ton of websites out here that are integrated with facebook scripts and depend on facebook being successful.

    Facebook may not stay on top, but they are not going to fade away any time soon.

    Right now only Google is higher than facebook on the Alexa scale. However, if alexa used "time spent on website" as a factor in their scale, Facebook would out rank any website including Google by a long shot.
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    • Profile picture of the author whateverpedia
      Originally Posted by garyv View Post

      I think that Facebook's infrastructure is going to keep them from being the the next fading fad. The software and integration that they are creating for mobile products and other websites is going to keep them in the game for a very long time.

      If you go to Alexa and pull up the top websites - I guarantee you that over half of them have direct links with Facebook. Some of them are on that list as a direct result of their relationship with Facebook.

      Right now there are a ton of websites out here that are integrated with facebook scripts and depend on facebook being successful.

      Facebook may not stay on top, but they are not going to fade away any time soon.

      Right now only Google is higher than facebook on the Alexa scale. However, if alexa used "time spent on website" as a factor in their scale, Facebook would out rank any website including Google by a long shot.
      Good points Gary, but how do you convert that to earnings?

      That is the big question to consider if you're going to buy the shares. All of the things you mention seem to me to be expenses, rather than income to FB.

      We'll have to see whether the shares are a good investment when they start reporting their quarterly earnings to the market.

      On a Price Earnings Ratio of over 100 the shares are priced for dramatic increases in earnings. If FB doesn't achieve this, the market will be savage (as it always is).

      Until there's evidence of a dramatic (and sustainable) growth in earnings, or a dramatic fall in the share price, as a value investor I'll sit on the sidelines and watch.

      Also the Eurozone crisis isn't going to be solved anytime in the near future, so markets around the world are going to be nervous at best. If markets continue to decline, all shares are going to be under pressure. A good time to be cashed up and wait for bargains to appear.


      I see the shares closed trading at $38.27, a small premium to the float price of $38, but already at a 9% loss to those who bought at market open for $42.
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  • Profile picture of the author KimW
    I just saw someplace that they are calling the IPO a "failure" after rasing only something like 19 billion?? :rolleyes:
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    • Profile picture of the author garyv
      Originally Posted by KimW View Post

      I just saw someplace that they are calling the IPO a "failure" after rasing only something like 19 billion?? :rolleyes:
      I don't think the IPO itself was a failure, but the IPO launch was a definite failure. But none of that was facebook's fault. There were a ton of software glitches going on - and quite frankly a lot of sketchy market behavior.

      As for profit, facebook has one of the most sophisticated advertising programs out there. They have so much information on their users, that they can become extremely customized in the way that they present ads.

      I personally know of several small businesses that are throwing tens of thousands of dollars per day at facebook ads and want even more. There are several companies just recently that have become billion - yes BILLION dollar companies in under a year because of their facebook relationship.

      Napoleon Biggs does a good job of explaining facbook's value here...

      Facebook Ad Revenue Growth Potential Seen by Biggs - Businessweek
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      • Profile picture of the author whateverpedia
        Originally Posted by garyv View Post

        I don't think the IPO itself was a failure, but the IPO launch was a definite failure. But none of that was facebook's fault. There were a ton of software glitches going on - and quite frankly a lot of sketchy market behavior.

        As for profit, facebook has one of the most sophisticated advertising programs out there. They have so much information on their users, that they can become extremely customized in the way that they present ads.

        I personally know of several small businesses that are throwing tens of thousands of dollars per day at facebook ads and want even more. There are several companies just recently that have become billion - yes BILLION dollar companies in under a year because of their facebook relationship.

        Napoleon Biggs does a good job of explaining facbook's value here...

        Facebook Ad Revenue Growth Potential Seen by Biggs - Businessweek
        Does that mean you did, or are going to buy FB shares?
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        • Profile picture of the author garyv
          Originally Posted by whateverpedia View Post

          Does that mean you did, or are going to buy FB shares?
          I don't have any yet. But I think it's still way under valued. As soon as more companies figure out the right way to advertise on there, the stock can only go up. Google is at 600, and facebook grabs much more attention than google does. Advertisers just need to figure out the proper way to engage facebook users. It's nothing like engaging a person using google search. You have to be a little more creative. But there's still huge potential in every niche - because literally everyone is on there.
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