Facebook Faces Obstacles to Blue-Chip Status

Competition is heating up

   

While we’ve seen many great tech companies emerge over the years, like Google (Nasdaq:GOOG) and Salesforce.com (NYSE:CRM) – it looks like Facebook wants to be even bigger.  According to a story in the Wall Street Journal, social network giant’s vision is to become a blue-chip company – one that’s built to last.

Facebook already seems as ubiquitous as Coca-Cola (NYSE:KO) or Proctor & Gamble (NYSE:PG).  And it’s not uncommon for a relatively young company to become a member of that most exalted list of companies:  the Dow Jones Industrials.  Examples include Home Depot (NYSE:HD), Microsoft (Nasdaq:MSFT) and Intel (Nasdaq:INTC).

Of course, a key part of Facebook’s strategy is to become a public company, which is expected to happen in 2012.  The expectation is that the company will raise $10 billion, which would translate into a valuation of $100 billion.

To this end, Facebook’s Mark Zuckerberg has been hiring key executives and building the necessary infrastructure to ramp up its growth.  In addition, the company has begun emphasizing better monetizing of its traffic.  It’s possible Facebook could earn $1 billion in 2011.

Yet there are challenges.  Recent IPOs from top social media companies – like Zynga (NYSE:ZNGA) and LinkedIn (NYSE:LNKD) – have seen losses for public shareholders.  Will the same be the case with Facebook?

However, the biggest issue is simply the fickle nature of the Internet sector.  Just look at some of the flameouts:  Friendster, Geocities, Broadcast.com, Bebo and MySpace.

And don’t’ forget Yahoo (Nasdaq:YHOO), which is now thinking about selling its key Asian assets to placate angry shareholders.

Facebook also is feeling competitive pressure.  Google’s (Nasdaq:GOOG) social networking service, Google+, has been getting decent traction, and it certainly has lots of resources to invest in the platform.

So far, Facebook has done a tremendous job in building a great company.  But maintaining its lead for the long haul isn’t going to be easy.  Don’t expect Facebook to join the Dow anytime soon.


Article printed from InvestorPlace Media, http://investorplace.com/ipo-playbook/facebook-faces-obstacles-to-blue-chip-status/.

©2014 InvestorPlace Media, LLC

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