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IPO Was Beginning of the End for Facebook

Posted by David Merrell On July - 27 - 2012

    Was going public a good idea for Facebook? Obviously, it made the founders and original investors a lot of money, but the long term prospects for the company are now in jeopardy. Take yesterday’s earnings report as an example. The company showed 32% revenue growth, earning $1.8 billion. The company showed a loss due to the costs of the IPO, but take that away and Facebook earned $295 million, or 12 cents a share. Despite those numbers, which met expectations, shares of the company tumbled after hours and were falling again today.

    Facebook is now at the mercy of Wall Street, where growth is not enough, and even meeting expectations will not satisfy investors. Each report that doesn’t show explosive growth that blows away analysts will be seen as a failure. With Facebook seemingly reaching a plateau in new users as it reaches market saturation, these types of earnings reports are going to be common.

    The company is great at its core business, which is social networking. Facebook is not as good when it comes to making money. It is struggling in the mobile market, where it has failed to fully capitalize on its hundreds of millions of users. Mobile is where the future is, and many people already use Facebook through their phones or tablets. If Facebook can not fully monetize this sector of its business, its growth will continue to slow and eventually turn into losses.

    Anyone who has used the Facebook mobile app can tell you the company has a long way to go in this department. The Facebook app for iOS is terribly slow and clunky. Before they worry about monetizing the product, they need to get it to work smoothly. Consumers will only tolerate a sub par product for so long before they move on to a competitor. Trends change quickly in the digital age.

    Each bad earnings report is now going to bring bad publicity to Facebook. While the everyday Facebook user probably doesn’t care about earnings, the negative media coverage will eventually seep into the national dialogue. Perception is almost as important as reality in this case. If users begin to hear that Facebook is struggling, or dying, it may encourage them to move on to a competitor. The most likely recipient of a potential Facebook exodus is Google+.

    In the long run, I’d say Google+ is a safe bet to outlast Facebook. Google+ is not a one off operation, it is tied to a much larger company that is not going anywhere. Google has put their full support behind the platform, and persuaded much of its user base across multiple platforms to sign up. Social networking is here to stay, but it will likely die down a bit in the coming years, just as chat rooms and AIM did before it. With Google’s reach, it is likely to be the last man standing in the field. Facebook will end up a victim of this new tech bubble that has been forming for the past couple of years.

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