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Long Term Investment- Why Are Facebook Shares Doomed?

05 Apr

It’s rare that I talk about individual stocks on here. I try and stay away from this because I’m a firm believer that it’s more important to have a good investing strategy than having a good stock pick (since no one really knows if it will actually be successful or not). That being said, I have two reasons I don`t think Facebook should be part of your portfolio.

 1) They might not be around in 5-10 years.

 2) If they are around, they will be too big to function successfully.

Some of you might think I’m crazy to say that Facebook won’t be around in 5-10 years. What I mean is they won’t have the gigantic presence they have now. Facebook is a household name, but I can remember when Myspace was a household name. I never dreamed they would disappear, but they did. I’m currently taking a social media marketing class (inbound marketing, personal branding), and we get to talk to experts in social media from all over the USA. Most of them agree that the social media industry is changing fast. They either said Facebook won’t be around in the not so far future, or they won’t be as influential as they are now. Either way, it makes Facebook a bad long term investment.

Jump forward 10 years, do you see Facebook? If you do, here’s what you’ll see. They will most likely be a carnivorous machine that buys up new start-up companies to expand their market/services. Ok, move back to present times. Their growth has already started to slow down. New competition is popping up every day. It’s inevitable that they will start acquiring other companies. As they grow into new markets/services, they will become less efficient. We always hear the saying too big to fail, but I think it’s too big to function. The buzz around the Facebook name will eventually disappear, and their inflated stock price will fall flat. I don’t think this scenario is far-fetched. It’s happened to many companies in the past (Bank of America is a good example). More and more people/companies are starting to see the power in social media, but as that power grows the major players will change.

I have little doubt that their stock will do well at first. Speculation will drive the price up. The richest 1% will make a killing. Heck, maybe even a few of us could make a quick buck if we get lucky, but we should be thinking about the long haul. There is a fine line between a quick buck and a big loss. Am I completely insane? How do you feel about the future of Facebook?

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21 Comments

Posted by on April 5, 2012 in Uncategorized

 

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21 responses to “Long Term Investment- Why Are Facebook Shares Doomed?

  1. Keith Maskell

    April 5, 2012 at 10:42 AM

    Although I feel your sentiment about Facebook not being a legitimate long-term investment (at least based on information I’ve synthesized) a dynamic many people aren’t thinking about is whether FB could transform itself into an e-commerce powerhouse rivaling Amazon and eBay. . .

     
    • Chris Neighbors

      April 5, 2012 at 11:56 AM

      I never thought about Facebook and E-commerce. I don’t know if they could do it better than Amazon. Amazon just bought Keva systems, so that should help with shipping times/costs. I understand that social media is merging with e-commerce and marketing, but I think it would be tough for Facebook because turning into an e-commerce site might scare users away (if they don’t do it carefully). Not to mention e-commerce is hard because of the massive networks they need to have to be successful in supply chain management. I feel like there is a better chance that Amazon goes into the social media rather than Facebook being a huge e-commerce player.

       
  2. canadianmdinvestor

    April 5, 2012 at 12:20 PM

    I agree, they will not survive, with their present business model.

    They will need to change, problem, do they have the vision? Tech sector is cut-throat! Look at Yahoo, once big, now, not-so-much!

    Can they make money other ways?

    Apple is prime example, they expanded into phones, music, TV, etc. They did not stick with PC’s, and software.

    Do they have this vision…that is the question?!?!?

    Interesting thread…

     
    • Chris Neighbors

      April 5, 2012 at 12:58 PM

      I don’t think they have the vision. I think they’ll try to buy vision, but it won’t work.

       
      • deluvian

        April 10, 2012 at 8:43 AM

        I think Facebook’s recent acquisition of Instagram goes a long way in supporting this statement. It seems that if/when Facebook’s IPO is snatched up by big companies and investment firms, the social network will become even more out of touch with its users than it already is.

         
  3. beninbrown

    April 5, 2012 at 3:33 PM

    Mr. Neighbors! Whats up my friend. Great post, even though I disagree too…By the way..I’ve never commented here using my personal wp account before but I’ve commented under my POE’s account before though.

    So if you’re like why is this strange dude getting chummy, no worries dude you know me by a different name 🙂

    Anyhow, I wrote a post in response to yours…

    http://www.beninbrown.com/2012/04/05/facebook-against-the-world-can-facebook-survive-uncertain-times/

     
    • Chris Neighbors

      April 5, 2012 at 4:32 PM

      Benin I hope my comment on your post made sense. I was trying to make a point with a short amount of time. I guess on the future will show us who’s right! Great post by the way, and thank you for the comment.

       
  4. beninbrown

    April 5, 2012 at 5:57 PM

    Hey Chris, I hear you. No, your comment makes perfect sense. Perhaps that’s the question will FB’s going public cause their priorities to make a drastic change?

    I think despite what ppl say about Zuckerberg, one thing that’s apparent is that user friendliness and a user-centric approach is a top priority for him (he just has a funny way of showing it). If he retains that approach to running FB, they are a force to be reckoned with for a long time coming.

    But like you have said only time will tell. And by the way thank you too for a thought provoking discussion!

     
  5. Keith Maskell

    April 6, 2012 at 6:43 AM

    What I find a bit unnerving about the whole situation is the way the IPO is going to work, where institutional investors are going to run up the price and overvalue it. . . FB would put itself on firm footing with me if it would sell a large chunk of shares to retail investors first. . . Let the users of FB have fair access to the shares! Let us buy into what we use without the corruption of institutional underwriters having the first dibs. If the institutions get first access, few will benefit. If the retail investor is allowed first dibs, everyone will benefit and the boat rises with the tide. But that’s just me.

    I’m not saying e-comm. would be a smart move for FB but it is an avenue it will take, mark my words. The current revenue model is not going to be synonymous with growth.

     
    • Chris Neighbors

      April 6, 2012 at 8:02 AM

      Keith You’re spot on about their stock. I think that’s just another signal that making money is the most important goal they have. I’m not saying making money is bad. Every company should make money, but too much greed is bad. I think that will start to show in the way they run their site, and it will be a turn off to their users. They can sell their shares at a super high price to the general public. Then no one will have any money to do anything so they’ll sit home on Facebook.

       
      • Keith Maskell

        April 8, 2012 at 5:06 PM

        Making money (i.e. a profit) is not bad and in fact I encourage and advocate capitalism (in its truly free form) as the most moral economic system possibly devisable by fallen men. So, making money isn’t bad (as we agree) but ANY greed is bad. Big difference between the motives of profit and greed. . . FB will continue to have the heavy hand in social media because it was truly the first to get everyone and their grandma (mine included) to sign up so this ‘market share’ is quite impressive. What’s the future of social media? Will FB have an existence in the mid-to-long-term? My inclination is that Zuckerberg knows what’s up, is agile, and has been a pivotal figurehead for the company. . . whether FB is a good investment at the IPO or not does not particularly interest me. . . nor does any stock in this inflation driven sans fundamentals market. . . but to each their own, brother.

         
  6. Baseball Serendipity

    April 11, 2012 at 5:45 PM

    This is a great point that you are making. I personally abhor Facebook for the simple fact that it has grown too large and it has completely redefined privacy. I joined when I was a freshman in college, back when you actually needed to have an @edu email – I bet 1% of all users today actually remember those times. It got to a point however where I felt stalked and it became a HUGE waste of time and a major concern for privacy. Since I reached the conclusion that it was not worth my energy, I deactivated my account. That was 3 years ago and I feel a huge weight off my shoulders. Many people have insisted I rejoin for networking purposes, but I don’t see there being sufficient value. The opportunity cost is far too high for me. I am proud to say that I am no longer a Facebook user and I see no value in it as a company. Everything comes around full circle and so shall this. It will die down when people go back to their roots and remember the proper social etiquette of picking up the phone and calling people – what ever happened to that!? Great post!

     
    • Chris Neighbors

      April 11, 2012 at 5:54 PM

      I remember the days you needed an .edu to be on Facebook. I’m just glad i’m not the only person that thinks Facebook will fizzle out! I still have mine, but I rarely use it. I don’t see a huge gain by using it for professional reason, and there is no such thing as privacy online so there goes most of the other uses. Thanks for the comment.

       
  7. Delgabre

    April 12, 2012 at 1:42 AM

    Facebook is the new Apple…. The person who started the company is the Face of the company and therefore it will do well…. The problems will come; god forbid Mark dies and there is no back up plan!!!

    Apple is now running on Steve’s passing, but it is left to be seen what the future holds!!!

    Facebook will loose share price in the first week…. People taking early profit, but with in this economic slow down there will be continued speculation and that will give it the momentum necessary for the price to move higher! (All my opinion)

     
    • Chris Neighbors

      April 12, 2012 at 8:28 AM

      I agree that speculation could drive the price higher. The problem is speculation isn’t permanent. They will do fine at first, but I don’t trust their future. Thanks for the comment.

       
      • Delgabre

        April 12, 2012 at 9:06 PM

        No prob…. Thats why we blog! Even if we agree to disagree! Take care

         
  8. agentfang

    April 12, 2012 at 11:55 PM

    Yea, I totally agree with you about FB. Will it become just another fad in the future? There are ton of websites similar to FB that have gone under due to the emergence of FB. I remember asianavenue.com was a big hit among the Asians where we connect and make our little own websites to promote ourselves. Now, it’s just a distant memory.

    FB buying instagram for 1 billion dollars is stupid I think. How can you value a company for that much based on an application used by FB users? Is there any substance to it? Only been in the market of less than a year… wow, those developers must be laughing to the bank on that one. It’s nice to strike it rich that quickly eh!

    Hey, I might ride it if I can. But I got suckered by Groupon’s IPO… that was a dud, luckily I walked away early on. Fool me once shame on you, fool me twice same on me.

     
  9. wistatetreasury

    April 27, 2012 at 7:33 AM

    Great post…but will disagree on FB disappearing. It will integrate and absorb others that will fail…but, with Google Plus ramping up for SEO Business rankings, Facebook will need to encourage easier ways for businesses to use it’s product and create customers. I think it will evolve, but won’t disappear. MySpace was a different animal…and required too much for non-tech people to get what they wanted onto it.
    Great blog, by the way! Your financial education blogs are great!

     
    • Chris Neighbors

      April 27, 2012 at 8:49 AM

      I don’t think it will disappear completely. I’m just assuming that on Facebooks end of business greed will corrupt them, and competitors will come out with something unique that people relate to. Thank you for commenting and sharing your opinion!

       
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