Thursday, February 2, 2012

Facebook IPO - A Stock To Buy?

Investors seem to be going gaga over the initial public offering of Facebook (FB). While institutional investors and will be first to buy, should the average investor get in early or wait for the early hype to die down? And ultimately will Facebook become the next Google or Apple in terms of rising stock value or a dud like My Space became for News Corp? The one thing for certain, on paper, Mark Zuckerberg will become a very rich man.

"Facebook mostly depends on display advertising, which amounted to $3.154 billion in revenue during 2011. However, revenue from sources other than ads have grown from 10 percent a year ago to 17 percent today. The documents also reveal that Facebook is highly dependent upon its partnership with Zynga. Zynga accounted for about 12 percent of Facebook’s revenues in 2011, as the leading third-party developer also generates a large number of pages that the social network displays advertising on, according to the filing."

Has Facebook overcome the hurdle and moved from fad to necessity? The numbers indicate that users still frequently visit their FB page as well as use it as a portal to online games. But what if Zynga no longer wants to play in the sandbox with FB? Or we become more reliant on our other iPhone apps for casual gaming and bypass FB. Or will the continual changes on the FB screen or issues with personal security finally turn us away from FB. We are a fickle bunch that could drop FB for the next big thing. Is FB here to stay?

That is the risk of the stock market, forecasting the future of a company based on present information. For those that believe that Facebook has more room to conquer and new revenue opportunities to expand on, the stock price will continue to reflect a positive direction. But if one expects that the lower barrier to entry into the digital world means that it is easier to compete in the social and gaming media space, and that consumers can switch their loyalty in a heartbeat, then a FB investment may not be as profitable as other investments.

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