The Decision to Buy or Sell

We have all heard the hype about the Facebook IPO. First it was the greatest thing since sliced bread, and now we get a bad taste in our mouth's just saying the word Facebook, and refrain from saying it in public. So what's the deal? Why has it dropped over 50% in the first few weeks? I have a few guesses.

We all use it, why not own it?

This is a big one. With over 750 million active users, we all would like to believe that this must be an instant cash cow. Just throw some ads on the pages and ta da! Instant Success! Not so fast. The user growth has slowed from 12% in March 2011 to 6% in June 2012. This is mainly because Facebook is saturating the internet to a slowed growth capacity. The initial jump and hype of joining and getting on the bandwagon days are over.

Mobile versus Desktop

The introduction of smart phones into the mass market has created a convenience of checking our Facebook accounts from our phones, rather than the computer. The down side to this is, how are we going to get ads on our phones along with the content of Facebook? We're not! Facebook relies heavily on the desktop model, but is quickly fading away with the mass use of smartphones.

Sales sales sales

Now to the important part. Facebook makes its money from advertisers and from user clicks onto the advertisements presented from the advertisers. The bad news is that sales per user turned down from 27% in March of 2011 to -3% in June 2012. A company that can't increase it's sales won't be around for long.

In the end, Facebook is a fun website that has potential to be valued in the millions, not billions. The CEO Mark Zuckerburg owns controlling shares of the company, which gives him complete control, and paralyzes the board from firing him, which needs to be done. I will be buying Facebook when these problems are fixed and the per user sales are up. Until then, it is a fun story to watch. I express my deepest condolences to the investors that were sucked into the IPO price.