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3 Ways Facebook Inc (FB) Stock Can Go Off the Rails

FB stock - 3 Ways Facebook Inc (FB) Stock Can Go Off the Rails

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Last week was the fifth anniversary of the Facebook Inc (NASDAQ:FB) IPO. Of course, back then the deal looked doomed. Mark Zuckerberg’s roadshow was underwhelming and there was also a technical glitch that delayed the offering. But the most worrisome part of the IPO was that the company did not have a coherent mobile strategy.

Facebook (FB)

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Yet the bears of FB stock were quickly disproven, as Zuckerberg showed that he had deep leadership skills and he used them to swiftly retool the company.

Now Facebook is one of the world’s most valuable companies and it is a dominant player in the mobile ad market. Note that about 85% of the company’s ad revenues come from mobile sources.

So with that brief background in mind, what should investors expect from FB stock now?

Well, as I’ve written on InvestorPlace multiple times, Facebook stock still looks like a compelling value. The company continues to execute with tremendous focus and there are various platforms that have yet to be monetized, such as Messenger and WhatsApp.

But hey, it’s always good to have some healthy skepticism. There are many examples of stunning implosions of market leaders, such as Yahoo! Inc. (NASDAQ:YHOO), AOL and BlackBerry Ltd (NASDAQ:BBRY).

Then what might be the risk factors with FB? Here are some to keep in mind.

FB Stock Risk Factor No.1: Growth

FB has an enviable track record of growth — and it rivals those of many iconic companies like Microsoft Corporation (NASDAQ:MSFT), Cisco Systems, Inc. (NASDAQ:CSCO) and Oracle Corporation (NYSE:ORCL).

But of course, there are relentless limits to growth. And Facebook could be approaching them. In fact, during November, the company’s CFO David Wehner warned of a “meaningful” slowdown.

Part of the problem is that it is getting tougher to gin up available ad inventory. Furthermore, the user base is already nearly 2 billion, which compares to the world population of 7 billion. But to boost the numbers, FB will need to expand in countries that essentially have limited internet infrastructures.

Then there is China. Because of the country’s strict censorship policies, FB is certainly a big risk. In the meantime, Tencent Holdings Ltd’s (OTCMKTS:TCEHY) WeChat has already taken an entrenched position in the market, with 1.75 billion users.

Since Facebook does not provide any guidance, it’s tough to gauge the level of the potential deceleration on the top-line. In other words, if it cuts through the overall consensus, the shares could be in jeopardy.

FB Stock Risk Factor No.2: Innovation

At the F8 conference, Facebook showcased many whiz-bang technologies, such as the ability to use your brain to type over 100 words per minute or to hear things with your skin!

Yes, such innovations are cool and potentially disruptive. But then again, they are years’ away from having any commercial impact.

The problem is, in the meantime, FB has been feeble with the development of break-out offerings. Instead, the company has relied on acquisitions to fill the void. Yet the issue is that dealmaking is fraught with risk. Just look at the flubs with the $2 billion Oculus Rift acquisition.

Interestingly enough, Facebook has also relied on knocking off features of innovators like Snap Inc (NYSE:SNAP). While this has helped to blunt some of the competitive threats, the fact is that Facebook does not seem to have strong creative juices.

FB Stock Risk Factor No.3: Video

Facebook has made a major shift in its video strategy — that is, to focus aggressively on premium content and even original programming. To this end, the company has struck deals to livestream Major League Baseball games as well as esports events.

However, there are some big-time challenges. After all, at the core of FB’s DNA is user-generated content. So going beyond this will require a much different mindset, such as allowing for more creativity and risk taking. There is also the potential problem of confusion for users. Why go to Facebook for premium content? Isn’t this for something like Netflix, Inc. (NASDAQ:NFLX)?

To put this into historical context, take look at the huge amounts of money that Sony Corp (ADR)(NYSE:SNE) lost because of its forays into Hollywood. The company thought it could derive “synergies” with its strong technologies. But in the end, the culture clash was just too powerful to overcome.

Tom Taulli runs the InvestorPlace blog IPO Playbook as well as, which provides interactive tools & services for employee stock options of pre/post IPO companiesFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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