July 27, 2012|John C. Dvorak
SAN FRANCISCO (MarketWatch) â€" Is Facebook Inc. a $7 stock?
That’s what at least one pundit on TV was ranting about Thursday, saying the opportunity for growth is over and that the company is already stable and the stock should be $7.
If you look around the sector and try to understand the nature of the whole social-media movement and the place in the world held by Facebook (US:FB), that may be right. Can Facebook grow much larger? Will nothing come along that is better?
There are more questions than answers when it comes to the No. 1 social network. I should mention that I do not use Facebook, but can understand how people find it useful. It may help them stay connected with old friends and often rekindle old relationships. There are many reasons to use Facebook.
That’s all fine, but where’s the growth?
The assumption is made by investors and analysts that Facebook has not maximized its potential. But what if it has? This is the key to understanding why the company maintains a trailing P/E of around 60 when it shows no such sign of serious growth. It’s actually an established company and should have a trailing P/E of 10 to 15.
This makes the stock price logically well below $10.
Another bad thing about the company is the harping about Mark Zuckerberg not being fit to be its chief executive. This sort of endless carping and innuendo eventually eats at the upper management and the CEO office itself. Let me assure you that once Zuckerberg is gone, that’s the time to short Facebook!
That said, I see no evidence that Zuckerberg can pull a rabbit out of a hat or be allowed to push Facebook into the direction he envisions. There are too many “suggestions†from too many sources about what to do next.
Just look at three of the apparently stillborn ideas.
Search engine: I guess this is still in play and was taken very seriously by Google Inc. (US:GOOG)Â The idea is that because you have all these pals who think like you do, that a search engine could be designed that would use the power of the crowd and your friends to offer more effective results than Google. Pundits everywhere said it would kill Google. So why is Google still around?
Twitter killer: People use Facebook for messaging in much the same way Twitter and Google+ use it, with followers and the followed with all the extra features Facebook brings, such as the idiotic “like†button. So why is Twitter still around?
Mobile phone: Here is the on-again, off-again idea that floats past every so often, the Facebook phone optimized for social-networking addicts that are seriously troubled. This phone, which other device makers also have tried to sell with limited success, is now morphing into the Facebook Mobile Initiative. I’ve heard so much from people who claimed to have seen what Facebook is up to regarding its mobile strategy that I don’t know what to think. I simply ask: Why is this taking so long?
While there may be some new games, social add-ons and other possible revenue streams from new third-party ideas, there is nothing revolutionary that anyone can see.
It’s beginning to look more like the growth phase of Facebook already took place and ended with the IPO. Now it’s a gray lady.
So Zuckerberg may know what he is doing insofar as what he thinks Facebook should be, but he is no Jeff Bezos â€" a guy who really knows how to make money.
Zuckerberg always has said it wasn’t about the money. He still says it. Maybe some investors should listen.
No comments:
Post a Comment