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Wednesday, May 23, 2012

Why Facebook Stock will Upset the Naysayers




I hate naysayers. You know those poeple that have to come out blasting everything to hell with their negative opinions before they even know what's REALLY going on. You can identify these people easily as they leave absolutely NO wiggle-room for doubt in their preaching. The worst is when naysayers jump on the "I told you so" bandwaggon after it's clear that everything has gone to shit. They are the first ones to proclaim that they knewn this [insert negative outcome] was going to happen, when really, they just found a cheap way to be right about something.

Okay, it's true; I bought into the hype surrounding the Facebook IPO and threw some money at its shares. And, while I did wait for the price to drop well below the opening bid before purchasing, I lost some dough. But am I worried? Hell no. Why? Because financial speculation about Facebook's potential as a future earner has grossly underestimated its future, that's why. Let's check out the facts:

USER BASE: EVERYONE AND THEIR MOM

As it stands now, nearly 1 in every 7 people are registered Facebook users, and 1 in 12 people are active users. Allow me to reiterate that: 1 out of every 7 people ON THE PLANET connect to the internet and to their social lives through Facebook. If someone told you that they had a business venture that would reach that amount of potential and active consumers in the world, you'd be an idiot not to anti-up. Some of the most lucrative companies in the world don't have a client range that big.

USER LOYALTY STATUS: REHAB/INTERVENTION LEVEL 5

A few years ago Google+ gained the same amount of users in about a week that Facebook had acquired over a period of 6 years or so. There was a huge joke going around on the internet about how Google+'s fast rise in user numbers made Facebook look like yesterday's news. Well…that's how it SEEMED anyway. Now the jokes on Google. The psychology inherent in Facebook's rise as THE dominant social network on the internet is not something to be taken lightly. And, it's this precise subtly of market psychology which continues to elude people. Because of HOW Facebook began and shaped the most connective entity on the internet, from the tiny dorm rooms of local universities, it has generated a brand of authenticity that no amount of research or bankroll spending can derail. People generally view Google as a data hub and information organizer. That being said, people had trouble adopting a new view of Google as being a genuine social network, while Facebook has spent years cultivating users and integrating their users' experiences into a unique platform identity that has been woven into every stitch of the web.

NOT JUST A SOCIAL NETWORK (BITCH!)

This is where a lot of financial critics keep going wrong; they keep insisting that no social network, by the principals of being a social network, can generate enough revenue to provide enticing dividends for investors. This view, is of course, complete silliness. Saying that Facebook is just a social network is like saying that Apple just makes computers. If you think Facebook is merely a platform for people to just to talk to their friends—like hanging out at some drunken house party—you might want to get that college diploma down from your wall and throw it through a shredder (you won't be needing it). People are "liking" products, "sharing" information, videos, preferences, and locational data. Putting aside the information privacy argument, all things considered, Facebook is more like Google—only better. Google is primarily a search engine based platform with some web-browsing tools and some social networking connectivity, but there's a big difference: No one cares about Google+, and Google doesn't have the uniform and familiar personal experience that Facebook does. Google+ is like a house party for celebrities and VIPs only—people like to be in the loop about such events, but it's not really all that personally appealing. Also, Facebook creates a simple single gateway for people to interact with the internet, whether using a desktop PC or a mobile device. Google doesn't have an all-in-one kind of integrated platform that's very easy to use; they have some connectivity, but it's not fully integrated and seamless, and people are generally too dumb and lazy for that. So, in a way, I think Facebook has all the data collection abilities of Google, and yet, the social network atmosphere creates the added bonuses of user loyalty and a more accurate picture of how people REALLY interact and share preferences.

MOBILE APP ADVERTISING: PC's ARE DEAD (…ALMOST)

Before Steve Jobs died, he gave an interview in 2010 in which he talked passionately (and accurately) about the future of online advertising. Mainly he talked about how the post PC era was prompting people to access information more through Apps rather than traditional websites. This growing trend of a growing application market is verified by statistics that show users are doing nearly 50% of their media and information consumption from mobile applications. Let me be clear here: on average, nearly EVERYONE is accessing all of their information from mobile Apps 50% of the time. So, no one is using a desktop PC 100% of the time to consume their info or media. What this means is that internet advertisers need to re-strategize their approach in order to reach potential consumers who AREN'T accessing traditional webpages anymore. So Steve was talking about how advertisers and technology companies are going to have to invest more in the way of advertising effectively within mobile Apps in order to tap into these growing mobile user trends. Facebook currently has plans to invest and develop mobile advertising tools for that very purpose. Combine that with a loyal user-base and a popular mobile app and you've got more than a silver lining. (Plus Steve Jobs has accurately predicted nearly every shift in the post-PC era to a T)

IPO'S ARE MISLEADING: IT AIN'T OVER 'TILL THE FAT LADY SINGS

There's been a whole lot of smack talking from financial "gurus" that insist that Facebook's IPO was all hype and just a bust. There's even been a bit of chastising going on, revolving around how the IPO was launched—something about being valued too high, and then, right before the offering, NASDAQ's trading systems froze/delayed the confirmation of sales and purchases. Maybe the hyped speculation was to blame. Maybe Facebook was overpriced (the market seems to think so). But this is how IPOs are often debuted anyway. It's practically Wall Street etiquette for IPO underwriters to beef up initial investor interest in order to generate leverage when dealing with a company about to go public; this means pretty much rigging the IPO offering so that way initial investors can make a quick buck when Facebook shoots up to $45/share. After making a quick buck, they all get out and the market adjusts for the true price of Facebook's stock. In fact, one of the biggest factors surrounding Facebook's flopped IPO has to do with its popularity and noteriety. People want big companies to fail and they want to speculate about less than stellar performance because Facebook is no longer an underdog; they are the big dog. Google and Apple never had any trouble with their IPOs because they weren't popular enough for anyone to care; headlines are with the big dogs. If Facebook had went public during its earlier stages you would have never seen this. But it didn't; Facebook went public at the peak of it's popularity and that made it a target for harsh speculation. So, while it's true the initial IPO didn't go very well for everyone, a bad IPO doesn't mean that a company has NO future value. That's an insane assumption. Remember Amazon's IPO? Priced dropped like bricks at first… then quadrupled by the end of the first year. WIN.

BOTTOM LINE

I'm no financial expert, but I do read a shitload (and you can tell by my scholarly use of the word "shitload"). What I do know is that good, reliable companies have niches; they have a special place in their market that few companies, if any at all, can even touch. Facebook has that very merit. (if Google failed at trying to take a bite out of the social network scene, how much more proof do you need?). I think the market believes Facebook was over valued because no company exactly like Facebook has ever gone public: the market doesn't know what to make of it—but that doesn't mean it doesn't have real value. Just like in Facebook's early days, when people thought "ohh jeeeeeeezzz another Myspace", and now, here we are 8 years later, and it's taken over the world. So, despite the fact that Facebook has stumbled off the starting blocks, I think it will come out ahead in this race. You don't become 900 million users strong because you have no future; you become 900 million users strong because you are the future. So, here's to the future, and holding out to win.