The MySpace Syndrome: The key reason for the downfall of MySpace was the flood of annoying ads, which weighed heavily on the user experience. That gave Facebook an edge. However, FB might be doing the same thing that did in MySpace. It’s clear that, as Facebook ramps up monetization, the ads are starting to pile up, and that could be giving a leg up to the likes of SnapChat, WhatsApp and Line. Meanwhile, studies are increasingly showing that the demographics trend isn’t looking good for Facebook on the young end. Could that be an early indicator of its future decline?
Flubs: Facebook has had a dry spell with new products. Offerings like Home for Android and Graph Search have failed to get much interest from interest. Poke, a knock-off of SnapChat, was a total flop. When it comes to product development, Facebook seems to be more focused on reacting to the competition, such as when Facebook introduced features such as trending topics and hashtags in response to Twitter. Long-term, Facebook must be more creative and launch breakout products, or it risks being vulnerable to the erosion of its user base.
Zuckerberg has clearly shown that he is a standout leader capable of at least identifying the need for a middle ground of solid product and monetization.
Facebook also is at the center of a massive shift where ad dollars are moving from traditional sources to online platforms. The company has much latent potential with properties like Instagram, which have minimal ads, and FB stock also could get a boost from a mobile ad network and auto-play video ads.
Still, Wall Street appears well ahead of this. FB stock currently trades at 38 times next year’s earnings, which is well ahead of other tech giants such as Google. In other words, growth is plenty expected … and if it doesn’t keep coming, watch out.
So should you buy FB stock? No — for now, much of the growth has already been factored into the stock. If you do plan on buying in, wait for a quick pullback.
More on Facebook’s 10th Birthday
- 20 Social Media Networks That Facebook Has Outlived
- Who Will Be the Facebook of 2024?
- Facebook Users Are Getting Older … and That’s a Good Thing
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.