Posts Tagged ‘risks’

Is Facebook a good investment opportunity?

Viernes, mayo 18th, 2012

After weeks and months hearing about Facebook’s IPO, finally its shares are going to the market today (May 18th).  The final prices is $38 a share.  I believe it would sky rocket during the first few hours, going higher than 50% to finally stay at 30% over opening price at closing.

If we forget about this first day, which is going to be really hectic due to all the buzzing around the company, making some people very rich and happy, I wonder if I could have Facebook on my portfolio.

Facebook figures are impressive: more than 900 millions users and $3.7 billion in revenues in 2011.  For a 7 year old company is not so bad.

It is hard to measure how much hype is caused by its own success or by a very intelligent PR strategy to be in all media all around the world.  Everyday, several news describe Facebook as a great company or service, others make criticism but at the end of they day is all FB.

The ideal situation to be before an IPO.  However, in my opinion, two main issues remain unsolved:

1. How are they going to keep growing on customers while keeping the existing ones?

2. Once all the hype is gone as to get as many fans in the pages, how are they going to provide added value to companies?

Regarding the first question, the success of Facebook is based in that for many people, all their contacts are sharing their lives there and they don’t want to miss anything.  Being able to share your life while gossiping on others is great.  But, it is sustainable over time?

On the second one, there is a great win-win situation between Facebook and many marketing online companies, the more they make their clients invest on Facebook, the better they look and the bigger Facebook gets.  When you have to invest your money in marketing, is nice for a while to feel the king of the party as you have thousands or even millions of fans.  But in the long run if companies can’t get my money back with interest (ROI) they will start looking somewhere else.

So far, it has been great for Facebook to have thousands of small companies to run their own pages or to even annoy people in groups with all sort of spam.  More traffic and work for free on the company.  Now, being public, they will have to start creating a different approach so they can get money from companies for using their web space.

Facebook has to be able to provide better adjust advertisement to their users and while Google has been able to do that fantastically, they still haven’t found an answer.

In 20 years from now, I still see millions of people doing search on the Internet.  It is not so clear for me that these same people would like to share their lives with others that hardly know o haven’t seen in years.

So, today, I would not buy stock to keep on the long run on my portfolio.