{"id":31839,"date":"2012-08-23T23:24:46","date_gmt":"2012-08-24T03:24:46","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/2012\/08\/why-you-should-stay-away-from-facebook-shares\/"},"modified":"2012-08-23T23:24:46","modified_gmt":"2012-08-24T03:24:46","slug":"why-you-should-stay-away-from-facebook-shares","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/08\/23\/why-you-should-stay-away-from-facebook-shares\/","title":{"rendered":"Why You Should Stay Away From Facebook Shares"},"content":{"rendered":"

By MoneyMorning.com.au<\/a><\/strong><\/p>\n

High profile flops don\u2019t come much bigger than the flotation of website Facebook NASDAQ: FB<\/u><\/strong>.\u00a0At its peak in the immediate aftermath of \u00a0the Facebbok IPO<\/a>, it was trading at $45. At the moment, it trades at just under $20, less than half this level.<\/p>\n

<\/span>
\nWith the end of the lock-up period arriving, even major backers are cashing out. Peter Thiel, the first outside investor, who had 44 million shares before it went public and still has a seat on the board, has now mostly sold up. Luckily for him, even after seeing the price plunge, he stands to make a huge profit since he bought the shares cheaply in 2004.<\/p>\n

So should other investors follow his lead?<\/p>\n

This Facebook Insider Sale is a Bad Sign<\/h3>\n

<\/center>
\nThiel\u2019s decision to sell, but still remain on the board (he still has a small stake) has angered those who think he should have quit having cashed out. However, the bigger issue is what it says about the company.<\/p>\n

Insiders tend to know a lot more about a company than the average investor. Unlike institutional investors, they are playing with their own money, not other peoples. And while the evidence is mixed on whether directors time their sales correctly, when someone like Thiel, with very intimate knowledge of a business, gets out, investors should take note.<\/p>\n

Equally importantly, even at today\u2019s share price Facebook<\/a> is no bargain.<\/p>\n

Facebook is Still Too Expensive<\/h3>\n

<\/center>
\nThe major problem is that Facebook is simply too expensive<\/a>. Even with the recent falls, it is priced at around 30 times\u00a02013 earnings. This means that it has to keep growing quickly in order to justify its valuation. Sadly, it is hard to see how it can do this.<\/p>\n

One possible way is through more ads. The downside is that this risks losing subscribers. The trouble is that users are often unwilling to accept the sort of large banner ads that big companies want.<\/p>\n

It\u2019s an issue that all online media firms are having to grapple with but it matters more for Facebook, given its lofty valuation<\/a>, than for\u00a0most others.<\/p>\n

The example of MySpace shows what can happen when the time comes to convert users into dollars. At the time of its sale to News Corp in 2005 for $900m it was second only to Facebook in size.<\/p>\n

However, the board found that they could only meet targets for ad revenue by inserting ads into every nook and cranny. Users rumbled the tactic and defected en masse to Facebook, leaving the firm to be sold last year for $35m.<\/p>\n

There is also a big question mark about whether data on the number of Facebook users \u2013 a key stat for advertisers – is even correct. A recent BBC report<\/a> claims that many profiles may be fake. More worryingly, some advertisers are now alleging that many of the clicks that Facebook ads attract do not come from human viewers but rather from automated programmes.<\/p>\n

Facebook’s Threat From Competitors<\/h3>\n

<\/center>
\nWhile Facebook has managed to fend off similar websites, there is no guarantee that this will remain the case. It is not legally impossible to set up a Facebook clone. Rivals have also learnt lessons from the failure of early attempts to copy Facebook.<\/p>\n

Already it has been unable to stop the network VK.com from dominating the Russian market. And if Microsoft<\/a> or Apple<\/a> decided to build a clone, Facebook could be in serious trouble.<\/p>\n

Meanwhile Google<\/a> are putting a lot of effort into making their users sign up to Google+, Google\u2019s own network. It\u2019s still growing whereas Facebook looks to have stalled<\/a>, which is why we think Google is the better investment.<\/p>\n

Buy Google Shares Instead of Facebook Shares<\/h3>\n

<\/center>
\nIf you want to buy an Internet technology share, we\u2019d suggest Google NASDAQ: GOOG<\/u><\/strong> instead. The company is trading at a far more reasonable forward price\/earnings (p\/e)\u00a0ratioof 13.7. It has a proven track record of growth and a more diversified business model.<\/p>\n

It boasts YouTube, Gmail, the Android operating system for tablets and smartphones, and Chrome. It also has its own version of Facebook in Google+. These channels offer a wider range to advertisers than Facebook\u2019s social network. In short it offers an investor more than Facebook can offer, for less risk.<\/p>\n

Matthew Partridge<\/strong><\/p>\n

Contributing Editor, Money Morning\u00a0 <\/strong><\/p>\n

\u00a0Publisher\u2019s Note: <\/strong><\/em>This is an edited version of an article that first appeared in MoneyWeek (UK)<\/em><\/a><\/p>\n

From the Archives…<\/strong><\/em><\/p>\n

A Housing Bubble…Upon Bubble…Upon Bubble<\/a>
\n17-08-2012 – Nick Hubble <\/p>\n

How Government Extortion is Happening Right Before Our Eyes<\/a>
\n16-08-2012 – Kris Sayce <\/p>\n

Are Gold Stocks About to Turn?<\/a>
\n15-08-2012 – Dr. Alex Cowie <\/p>\n

The Amazing Ethanol Scam in the USA<\/a>
\n14-08-2012 – Jeffrey Tucker <\/p>\n

Why I’ve Done a U-Turn on Solar Energy<\/a>
\n13-08-2012 – Kris Sayce <\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n


\nWhy You Should Stay Away From Facebook Shares <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au High profile flops don\u2019t come much bigger than the flotation of website Facebook NASDAQ: FB.\u00a0At its peak in the immediate aftermath of \u00a0the Facebbok IPO, it was trading at $45. At the moment, it trades at just under $20, less than half this level. With the end of the lock-up period arriving, even … <\/p>\n

Continue reading “Why You Should Stay Away From Facebook Shares”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-31839","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/31839","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=31839"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/31839\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=31839"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=31839"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=31839"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}