Facebook: The next big slaughterhouse for the social media stocks

Right from the get go, I had my doubts about the future success of Facebook as a business entity. As a result of it, I would not recommend its shares to anyone looking at the stock market to invest their money.  

I am not a certified investment adviser; however, I sincerely believe that my practical accounting experience with technology companies during the nineties boom period for the industry, gives my me some form of credibility on this topic. During that period, I had the opportunity of establishing and managing accounting department of technology entities at their start-up stages. My responsibilities at that time also included compiling financial reports and furnishing them to attorneys and accountants who advise the management on final decisions of going public. In one case, one of those companies had a historic one-day gain of 606% on the Nasdaq exchange. Unfortunately, that entity is now a poster child for how the mighty social media community can fall.

You may ask why I believe that investing in the shares of Facebook would be a bad move. My answer would simply be social media come and go. They, just like MySpace and TheGlobe, pass into oblivion; people get bored easily and are always looking for the next in-thing.   

I would add further that Google, Bing and other popular search engines provide easily accessible choices of where to purchase stuff, that we are interested in, without being bombarded by ads while socializing with Facebook friends. Whenever needed, one can easily perform searches of a target purchase with user reviews, price comparison and suppliers. Yes, the search engines attach ads to their own results pages. And yes, they also suffer from the same unfavorable treatment by the page visitors. 

The cost of acquiring and maintaining membership on a social media network is too high to yield a decent net profit from it. This alone makes the constant need to generate new revenue streams a moving and easy to miss target. The term we used in the nineties was “cash burning rate”. What a befitting definition; one has to burn cash with the hope that, at some point, the burning rate will become lower than revenues being generated. That, in my opinion, is a Las Vegas visitor's business model and not a feasible business strategy. 

As spoiled and impatient children, we all are awaiting for the next new thing. Already most of the people I know - teenagers and adults alike - are bored with the virtual rewards of Facebook life. They are only on it because that is what is out there at the moment; MySpace was the new hot thing too at their glory time. Another hot disappointment is the inability to protect one's individual privacy: all private information one enters there becomes irreversibly public; analogy to shouting about your private life, from the roof of your house, comes to mind. 

New big ideas and new opportunities will continue to present itself. “If you build it, they will come"; “and they will leave”, I may add.