Facebook (FB) has become a company with a market cap of $142 billion in just a decade or so, under the guidance of Mark Zuckerberg. That’s not bad for someone who is now only 29. But has Wall Street has gotten too enthused about FB stock?
Perhaps so.
Let’s face it, the history of tech is chock-full of implosions. For FB stock, the most applicable one is probably MySpace. Until 2008, MySpace was the clear leader in the social network spce. It had a tremendous brand and a fast-growing user base. At the time, it seemed inconceivable that Facebook would ever have a chance.
But MySpace made lots of blunders. The company was slow to open its platform and allow third-party development. And by being a part of News Corp (NWS), MySpace suffered from the weight of the bureaucracy. There was also not a big priority on technical talent.
Zuckerberg, on the other hand, took another approach, which would be crucial for FB stock. He made Facebook into a platform, which allowed companies like Zynga (ZNGA) to become billion-dollar businesses. He worked tirelessly to find the best engineers — even buying companies to get talent (known as acquihires).
Oh, and it also helped that Zuck believed that making sure users were real, not fake, was important. It meant that they had more invested in their profiles. At the same time, this allowed Zuck to build a tremendous user database. It set the stage for the powerful Facebook ads system, which has helped FB stock.
Despite all this, FB stock may still be in an ominous position. If anything, the reason may be that the company is under tremendous pressure to produce standout results every quarter. In other words, Zuck has become obsessed with monetization.
While that has been a good thing for FB stock lately, it may be bad in the long-term. Just take a look at this:
Facebook is the new Myspace pic.twitter.com/UAonEgWvpo
— Davy Kestens (@davykestens) December 19, 2013
Yes, things are looking like a mess — that is, a MySpace mess. Interestingly enough, on the most recent earnings call, CFO David Ebersman noted that the company was reaching the limits on how many Facebook ads can placed! What’s more, he said that teens were getting bored with the service … which sent FB stock tumbling.
Plus, there is a flood of social applications that are picking up Facebook users. Some include SnapChat, WhatsApp, Pinterest and Line. It even appears that Zuck attempted to shell out $3 billion for SnapChat but the deal was rebuffed. Kind of embarrassing, huh?
But again, Wall Street does not seem too concerned, as seen with the strong momentum in FB stock. But if Facebook users start to get annoyed, it will certainly mute growth. Besides, it is also worrisome that Mark Zuckerberg can’t seem to create breakout apps. For the year so far, he has launched duds like Poke, Graph Search and Home for Android. In light of this, is it any wonder that Facebook users are looking for something else?
It was the same thing with MySpace, just a few years ago. And it’s a bad sign for folks betting on FB stock.
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.
