The future of networking technology is mobile apps and ironically thats where Facebook falls flat.Right from bug issues to monetizing its mobile platform ,the one aspect of the social network that needs to be perfect is its downfall.Just before the launch of the IPO, there was a mention the SEC filing about it being unsuccessful in implementing a revenue model for its mobile users.With the exponential growth of smartphone users over the last 2 years,and the continuing trend of increased logins from the mobile app,its clear that Facebook need to quickly find a way to tap into that market and gain advertising revenue.The biggest clue to show us how important the mobile platform is to FB and how much of a threat it perceives from other social sharing apps, is its hurried acquisition of Instagram for a ridiculous $1 bn.Im not sure how smart or foolish it was to tell the world about its inability to score from the FB app,but this is definitely going to be one of the primary reasons in future for the decline in the user trend.
The news was just in at the time i wrote this post.A class action lawsuit was filed against the major underwriters,most notacabely Morgan Stanley,and the initial investors and stakeholders.The gigantic stock drop of more than 20% in just the first 3 days of trade are giving shareholders nightmares.Since the news of this lawsuit is just fresh and the Facebook stock still being live traded right now,its possible that at the end of todays close it could drop even lower.The suit is based on the accusation that the underwriters gave altered projections of future growth prospects.This primarily deals with the apparent shady disclosure that the Facebook app wasnt monetized sufficiently and as a reason,a shift in the number of mobile users had led to a significant drop in earnings.
FALL FROM GRACE
On a publicly traded market,words speak louder than numbers. Events, rumours, perception and simple speculation can radically alter the fate of any security.Even before its much hyped public début, trade gurus were pessimistic about its performance in the long run,quick intraday trades added fuel to the volatility and Morgan Stanley stepped in as early as the second day to bail out the stock before the days close.This is the fate of the second biggest website in the world, a social phenomenon with 200 million(whew!) daily users.Just goes to show even the most successful private enterprises fumble on the open stage.
I know its unfair to compare Facebook and Google in any way.One of the fundamental reasons a stock does well or continues to perform well over a period of time is future growth prospects and re invention of a product that will bring in fresh revenue every financial year.People want to push a young company with crazy money making ideas,not a company that has been at its best.Facebook has been around for 8 years and hasn’t shown the kind of advertising revenue that Google perfected.The only future monetization method for FB, is through its mobile app which it sadly cant figure out.I read an article on Forbes,in which the author spoke of the ill effects of investing in a company in its zenith.The sky is NOT the limit for FB,its already reached as far as it can get,and now is running out of steam.We’ve seen the disastrous performance of other tech IPOs in the last 18 months, just like everyone predicted,FB too has been trading under the IPO price since the last 4 days.For the sake of millions of retail investors,lets hope they stop losing money.