The Facebook Flop
A "Guaranteed" Winner Takes a Dive
If Facebook was smart, it'd shelve its IPO plans, I said in late 2011.
“In what’s likely to be a dramatic first day of trading, investors would be smart to pay close attention to the downward death spirals of Facebook’s buzz-heavy competitors.”
“Ian, you're an idiot,” I was told. “Anyone with half a brain will buy shares of Facebook when it IPOs. It's a guaranteed winner. “When your recommendations blow up in your face, and Facebook explodes, I'll be asking for my money back.”
But the warnings fell on deaf ears.
And retail investors – like my adoring fan – simply got caught up in an over-hyped stock trading at 100 times earnings, and more than 25 times sales.
So far, Facebook has been nothing short of an embarrassment.
It ended its first day up 23 cents cents above the IPO price. And the stock is already down another 12% on day two. And to be honest, I don't see much upside here in the near-term.
As I said Friday:
If the stock drops as fast as it goes up on the first day, none of us will be surprised.
The glitz of the social network has worn off for me, and I wonder if that will be true for millions of other users.
The business is real — nobody is contesting that. And it's generating great revenue ($3.7 billion in 2011).
But I still can't wrap my brain around a $100 billion valuation.
Facebook is already bemoaning revenue pressures and there are concerns about slowing growth and sky-high valuations.
Profit margins may have peaked. Users aren't trusting of Facebook...
General Motors has already pulled $10 million in advertising, suggesting even GM doesn't have faith in Facebook's operating platform.
Stay away from Facebook. Stay far, far away.
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