I wouldn’t invest in Facebook. Would you?
It’s the question on everyone’s lips today – would you invest in Facebook? As the company finalises its IPO price ahead of its market debut on Friday, the general consensus is a positive one – early reports show a huge amount of interest in owning a tiny piece of Facebook’s 900-million-user success story. Predictions suggest that the share price could push valuation up to $104bn – according to the Telegraph, this makes it more ‘valuable’ than both Disney and Ford.
So, for Facebook’s early investors, payday has arrived. But surely the fact that so many of them are cashing in should be a warning to wannabe buyers? If you invested in 2004, you’re laughing – the social network’s value has exploded to such an extent that even someone like U2’s Bono, who owns fewer than 2% of the shares, is set to be a billionaire and the world’s richest rock star by the weekend.
The question for those scrambling to buy shares now is ‘Where can Facebook go from here?’ Effectively monetising a social platform is an age-old problem, and one that Facebook, despite its huge audience, is struggling with. Targeted advertising looked like it might be the answer, but the proportion of users actually engaging is very low – currently under 4%. Rumours are flying around about an internal battle among Facebook’s board members on how aggressively to push adverts to its members. Zuckerberg is (rightly, in my view) against increasing the number of adverts on each page – a move which could tread the dangerous ground of alienating Facebook’s community.
This is the constant struggle – a good social network relies on its relationship with its members, keeping then engaged and involved. Too many adverts or any invasive, obvious use of customer data immediately rings alarm bells among users, damaging the trust that is essential if you want your members to share personal details about their lives.
I personally can’t see where Facebook can go from here. It’s a fantastic social platform, with a huge number of users who log in on a daily basis. It’s already changed its layout, introduced basic targeted advertising, brand pages and a mobile app that works across all platforms. It’s swallowed up or bought out any companies that threaten its market domination.
Tech companies gain real market longevity and attract the savviest investors by constantly innovating their products and services. Look at Apple – they moved from making computers and software to dominating the music and mobile markets; and will doubtless continue to deliver their brand of slick, user-friendly technology to new markets. To me, this is a far smarter investment than a company that has rocketed to dizzying heights on the back of one platform and idea – a platform which still seems to be working out how to turn user numbers into hard cash.
There will always be a new ‘big thing’ in the tech space. For an impressively long time, Facebook was just that. This week’s market debut feels like the company is riding the crest of a wave, at the top of it’s game. Watching from outside, its difficult to believe that there is anywhere to go from here but down.