Lately, there have been a spate of academic studies that have poured cold water on Facebook (FB), especially pointing out the problems with its teen user base.
But perhaps the boldest one comes from a researcher at Princeton who declares: “Facebook will undergo a rapid decline in the coming years, losing eighty percent of its peak member base between 2015 and 2017.”
Yikes! That would certainly be a disaster and would wipe out much of the $141 billion market cap of Facebook stock.
So how did this researcher come up with such a brazen conclusion about Facebook stock? Well, the study actually uses an interesting approach — that is, the same kinds of methods used to analyze infectious diseases.
While this may seem a bit strange, it does make sense, as social networks rely heavily on sharing. No doubt, social sharing can accelerate the growth of a system. Yet it also means that the unwinding can be just as swift. Just look at what happened with companies like Zynga (ZNGA), MySpace and Friendster.
So, what could be some of the drivers that would spell doom for Facebook stock? Let’s take a look:
#1 – Age
Facebook is almost 10 years old (it was founded on Feb. 4, 2004). And yes, this is a problem. Consumers like to use something that is fresh and exciting.
The age problem has hit companies like Yahoo! (YHOO) and AOL (AOL). Despite many efforts to turn things around, they’ve had a hard time getting more traction. Facebook stock might just be the next in line.
#2 – The MySpace Syndrome
When Facebook went public, Mark Zuckerberg was lackadaisical about the demands of Wall Street. But when Facebook stock began to collapse, he suddenly transformed himself. He became a big believer in monetization. If anything, he seemed to be obsessed with it.
True, this has resulted in a rebound of Facebook stock. But the long-term consequences could be severe, especially as the user experience suffers.
Look at the following tweet, an observation from the CEO of a social media startup:
It really does look like a flashback to the awful days of MySpace. Perhaps this is why that in the most recent FB earnings call, the company’s CFO, David Ebersman, said that the social network was close to reaching the limits on how many ads can be placed on the platform. That doesn’t do much to inspire confidence in Facebook stock.
#3 – Facebook Losing Its Cool Factor
There was something else that the CFO mentioned on the earnings call: teens are starting to look elsewhere for their social interactions. This is probably why Zuckerberg offered $3 billion for SnapChat.
But SnapChat is not the only company he needs to worry about. There are a myriad of tough new competitors that are getting the interest of the world’s youth, such as WhatsApp and Line.
What’s even worse is that these apps generally go against the vision of Facebook, which is to promote public sharing. But more and more people realize that this is not necessarily a good idea. As we’ve seen in some cases, unwise social media sharing can even keep you from getting hired.
#4 – Lack of Innovation
Quick! Name something cool Facebook has launched recently.
I can’t. But I can come up with a variety of products have flubbed recently:
- Poke: This was a knock-off of SnapChat. While Poke did hit the No. 1 spot on Apple’s (AAPL) App Store, it quickly fizzled.
- Home for Android: Zuckerberg had an impressive media launch for this app. But Home has gone absolutely nowhere. The hope was that it would become the default launcher for huge numbers of people. However, it looks as users do not want to see photos of their friends every time they open their smartphone.
- Graph Search: This was supposed to be a way to get a piece of Google’s (GOOG) lucrative market. But Zuckerberg has been fairly reticent about the product.
For the most part, Facebook stock has suffered from a creative dry spell. No doubt, this could be a huge problem, especially as the pace of innovation from its competition has not let up in any way.
With all that in mind, is it really crazy to imagine Facebook stock collapsing by 2017?
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.