There was a lot of hype about Facebook becoming a publicly traded company. The stock went public last week, and leading up to the big event there were endless speculations about its potential. Buying stocks is definitely on my top-10-favorite-things-to-do list, but I had no intention of every buying any shares of FB for one big reason:
I hate Facebook.
I didn’t use it for years because I hate it so much. The only reason I have it now is because I have to in order maintain our Facebook Page for work. Having a great affection for a company is not always one of my reasons-to-buy their stocks, but it certainly helps. Outright loathing a company is definitely a reason-NOT-to-buy for me though.
That said, I could have been persuaded to by Facebook if it was a better stock. After all, it fits my personal criteria of being a company I know and understand, which is my primary foundation for stock-picking. However, in addition to me hating it, Facebook is lacking a bit more in order to make it an appealing investment to me:
1) it’s too new, both as a company and a stock. Facebook has been a huge success and it has a great business model, but it’s only been up and running since 2004. Is Facebook going to withstand the ages the way brands like Coca-Cola, Proctor & Gamble, and Johnson & Johnson have? Maybe, but maybe not. At this point, Facebook still needs to prove its staying power to me.
2) it doesn’t pay dividends. I don’t buy dividend-paying stocks exclusively, but I like them when I find them. Healthy payments from a company with a history of continuously increasing dividends over a number of years will entice me to buy a stock. Because I’m young, I invest for the long-term so if I’m going to hold a stock for a number of years, I appreciate getting a small regular pay-out for it.
3) its first day disappointed. Facebook was kind of a bore on opening day, closing only $0.61 above its opening price (for comparison, Google rose $20 the day it opened), which suggests the stock was over-valued. While the first trading day doesn’t necessarily set the tone for a company’s trading lifetime, I would personally feel more motivated to get on the bandwagon if FB had been a runaway stock market success. Instead we’re all wondering where is it going to go from here? Which brings me to…
4) Where is it going to go from here? Facebook is the leader in social networking, but is this sustainable? Is it always going to hold its place as king of our online social web? Other social networking sites have risen to great heights and then burned out (ie. MySpace — who uses that anymore?) to be replaced with something else. I think Facebook could get old, and users might abandon it for something new — especially since they’re continually pissing everyone off with privacy policy adjustments, etc. Like any company, it will only succeed if it can retain current customers and grow by finding new ones — does Facebook have that potential?
Do you use and like Facebook? Did you buy any FB shares? What is your expectation with the Facebook IPO?
“I hate facebook” — love it! I don’t find FB that bad on its own. It’s really the people on it who are intent on spamming my feed with useless crap. As a social tool it’s pretty awesome since almost everyone has FB and you can find people *super* easily.
In terms of stock, it’s already fallen to by 4$ today. :S
hahaha that’s hilarious! I think I might watch the stock just out of curiosity
I don’t plan on buying shares. I think it’s way overpriced.
I hate FB as well. If I didn’t live far from a lot of family members and friends I wouldn’t have it. I actually only add a handful of people and rarely use it. I hate when random people add me or people that I’ve just met once or twice! I think it was so hyped up and perhaps people thought that FB going public was similar to Apple, whereas they believe it will rise and rise and they’ll see a huge gain…obvs! Great post!
I get why people were hyped about the FB IPO. It’s a massively used website that can be pretty cool. That’s as far as it goes for me though. While I use facebook, I don’t think I’ll ever invest in it for a couple of reasons. I don’t like their business model. It is overpriced, although we won’t know exactly how much until its first quarterly earnings release. It relies on advertising for its main resource of income. It purchased Instagram for $1 billion, which to me was a waste of money. Last but not least, and I’m not completely sure about this one, you have no voting rights. If I am going to be a shareholder in a company I want a say for the amount of shares I’m going to own. Google just did this when they announced their F/S, all of their new shares won’t have voting rights.
interesting! Those are great points that I didn’t even think of!!
I agree the Instragram purchase for $1 billion was too much. I have no idea how they expect to get a return on that investment.
To me the most disturbing part of that puchase wasn’t the price, it was the fact the CEO could do it without any members of the board having a say on it.
I don’t mind an arrogant CEO (many of the great ones are), but I don’t want to buy “ownership” in something where the CEO can do whatever they want whenever they want.
No loyalty to brand is a problem with Facebook. If something better comes along, most will switch in a heartbeat.
Amen!
I hate/love Facebook. I like keeping up with people through Facebook, it makes it easy. I hate that it has become a way to flaunt your life!
Its P/E ratio is sky-high (I mean, 80 years!? come on) with no reasonable prospect of ever increasing profits to justify it. Also, the lack of dividends makes it a total no-buy (at least, if you want to invest like Warren Buffett). Facebook is a flop stock; called it in February and surprise — internet bubble all over again.
So how much Twitter stock will you be buying? ;)
Very good write up. Not paying dividends is a personal choice, but the main reasons many companies don’t pay dividends is because they consider themselves more growth oriented and would be better off using their cash on internal investments rather than paying a dividend. Or they are, as in the case of Berkshire, run by someone who believes he can invest the money better than you can, and I tend to agree with him.
There are a lot of reasons to not like Facebook, DebtnTaxes mentioned some very good ones. I think there are much better plays otu there with your money. But like I said, very nice write up.
Full Disclosure: I don’t own any Facebook and have no plans to own any or exercise any options on them.
That’s true. I’m partial to dividend stocks, but I don’t buy them exclusively… I don’t feel super confident in stock-picking yet so dividends are still a way I feel I’m “guaranteed” a return (even if that’s not really true)
Thanks, I’m glad you enjoyed the post =)
I don’t really care that they don’t have a dividend yet. Mainly because they are a growth company and money should be used for growth. Just take a look at AAPL, if they would of paid a dividend from the start they most likely would of went bankrupt. They were close to declaring right before they brought Steve Jobs back. I’m still not sure if paying a dividend was the right move for AAPL to do, although it is a much safer move now than it was back in the 90′s. Plus I’m not sure how many people invest in AAPL for the divvie, more likely they invest because of the earnings growth.
Totally spelled my name wrong there lol
Yeah, I had two buddies call me up asking me if I “wanted in” on their connection to purchase IPO shares. One of them went on for about 20 minutes on how dumb I was for giving up a “guaranteed double.” I tried to explain that Facebook’s business model is different than the other tech folks and I just didn’t believe in it, plus the multiple was crazy high and it’s newly public. Plus I’m not a big fan of single stocks anyhow – I wasted a lot of time watching stocks go up and down, so I stick to index funds for the most part….
Anyhow, it may go up at some point, but it’s not for me – at least not based on what I know now.
Agreed. I’m willing to change my mind about the stock in the future, but at this point it doesn’t appeal to me at all.
I think people that don’t really understand finances got excited because they all use & love Facebook so they just assumed it would be amazing. They don’t care how the company is valued or what potential it has long term they just got caught up in the hype and popularity =\
I agree with most of what you said and the general discussion here. I too won’t be buying facebook as I feel it’s heavily overpriced. The one thing I disagree with you on is the assessment that it wasn’t a successful IPO as the price didn’t rise. Simply because the price didn’t rise like Google’s IPO is why it was so successful. Remember that if the price rises a lot the first day, that’s just money left on the table by the company that the big institutional investors that got to purchase the shares at the cheaper price earn.
As the shares didn’t rise a ton, it means facebook correctly priced the IPO and got full value for the shares.
You were very wise not to jump on the band-wagon. Unlike Google which actually makes stuff, Facebook really doesn’t offer anything tangible that people can use outside the core service.
You’re funny. I also really don’t get Facebook. For a while I thought I was the only one.
I’m not a huge fan of Facebook either AND I don’t buy individual stocks. So I’m definitely not buying any shares. To me, this is exactly the case in which to NOT buy individual stocks – you’re completely guessing at what the stock price will do.
I’m definitely going to enjoy watching the stock price though :) The only stock I currently really follow is my employer’s (hello that affects my income!) and I find it amusing to watch tech stocks go up and down. So FB will definitely be watched for amusement.
I like using facebook minimally – it is easy to keep in touch with people who I want to, I can avoid those I don’t, and it totally negated any reason at all to fly home for my 10 year high school reunion! I already knew who turned into a relgious motivational speaker and what our homecoming queen + valedictorian was up to (answer: waitressing). (Not that i’m still annoyed my A- in typing kept me from being valedictorian or anything…)
But no, I won’t buy the stock. This is nothing special since I don’t buy any individual stocks, but even if I did, I wouldn’t. Not just because I’m unsure on the business model, but I also feel like facebook is losing it’s stronghold. Now the social media market is full of a lot of alternatives and a lot of people (like you) hate FB and don’t use it.
I think the inital $24-$28 pricing was good as it left some opportunity for initial investors to make some money. But at $38 you could see this becoming more difficult and no surprise in the subsequent fall.
The valuation is astonishing (I thought the .com boom was over!!)
The main value is the amount of personal info facebook has. From a marketing perspective, facebook has a captive audience and with all the info ppl share its a goldmine for martketing companies. If however this doesn’t deliver then the valuation will look even more expensive.
Again its amazing that people normally like to keep their personal info private but when it comes to facebook or google, its given away with little thought.
OMG, I hate Facebook. I remember signing up for it in 2005 only because every person I met on campus would shout, “Facebook me!” as they walked away. I realized the only way I was ever going to speak to people was to get an account.
I think deleting my Facebook in 2010 was probably the best thing I’ve ever done for my blood pressure.
Facebook has been a success. The current chief of the company MR Zuckerburg will be replaced in the not to distance future by some stuffy CEO. Thats how these things generally end. Steve Jobs was fired by apple and than replaced back in the nineteen nindies and rehired in 1998 the rest is history. Keep in mind that apple was very successful for a long time and than hit a soft pach Even though Steve Jobs was at the helm. Just because someone is very innovative does not make them infallible.That being said Mark Zuckerburg and Steve Jobs are clearly superior to some stuffy CEO. That believes all that business is about is crunching numbers and focusing on the bottom line very often at the expense of everything else.