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This is why you really need to research a company's growth potential before you buy its stock. Just because something's popular doesn't mean it can grow forever

This is why you really need to research a company's growth potential before you buy its stock. Just because something's popular doesn't mean it can grow forever. Had all those investors realized that Facebook was a one trick pony they might not have lost 40% of their money (and counting...). They had all these visions of grandeur that Facebook could plug various services to their existing users and make endless amounts of money. Maybe add a Facebook classified ads service, document sharing service, auction site, shopping e-store for its members that takes a small commission. Whatever other companies did, just copy it and add it on Facebook and watch users instantly abandon competitors. After all FB has close to a billion users. Little did they know that Facebook users were never that engaged nor will they ever be. The collective hive mind of bored humans completely ignored Facebook Questions. Zuckerberg's first attempt at trying to cultivate its legion of human potatoes. He quickly pulled FB Questions after no one used it and tried again later by changing it to Ask Questions and shoving it right after the "Add Photo/Video" link above the status update box itself. People are still ignoring it. Its members are there to share photos and talk to friends, not seek knowledge, not sell photos, not start businesses, not buy digital products, not share documents, or anything else productive or profitable for that matter. In general users follow the "One website per one purpose" rule. Auction site neanderthal, eBay learned that the hard way when it simply tried to tack on classified ads thinking its members would ditch craigslist. Even monopolistic cro-magnon Microsoft has tried and failed numerous times at getting its installed base to use more profitable tacked on services and products. Ironically they only succeeded in spreading the worst internet browser in human history this way. Facebook's still in denial about it's useless network of potatoes. Sorry. Humans. After all these years Silicon Valley still values massive droves of bored users without problems over clusters of customers with money in hand. In some ways they're right, Facebook still makes massive amounts of ad revenue and is still profitable. But I doubt it'll experience any further population boom or miraculous revenue growth. The company isn't going anywhere for now, but as Facebook fatigue sets in and members find new and easier ways to share photos with friends (a user's main activity) things might not always be "flowers and sunshine" for FB. And in the future we'll look back in hindsight and say "I can't believe they didn't foresee it, all the signs were there."

taligent 14y ago
I just love armchair experts. Did you ever think that maybe those investors aren't looking for a short term return and don't care about the stock price day to day. You know the type of investors we actually need more of. And if you actually were a little more creative you would see that Facebook doesn't have to bundle everything into the website. It can have separate brands like Instagram and grow into new markets that way. And with its sheer user base and content it would be able to decimate smaller competitors.
- AlisdairO 14y ago
  > Did you ever think that maybe those investors aren't looking for a short term return and don't care about the stock price day to day. You know the type of investors we actually need more of. That kind of intelligent investor was probably unlikely to buy in on a clearly overhyped IPO, in fairness.
  - hkmurakami 14y ago
    You still could have sold at above $42 on opening day :)
  - joering2 14y ago
    Yes agreed and +1. I believe it was Warren Buffet who said: on stock exchange, every long term investment is a missed short term investment. But obviously you wont find a person in his her sound mind (not to mention financial guy) who would say: hey lets buy now and even if it goes down 40% thats fine we are in it long run... (lol) Besides Facebook is a special example. It was banksters fraud perfectly executed. Yes Facebook makes money. Yes, it is self sustainable, yes it will pay off all its debts and creditors. Yes it doesnt go anywhere. But the overbloated IPO price with this PE was a freudster move. This stock belongs to single digit wagon. When it gets there, then consider buying for a $1 or $2 pop accordingly to good Q, but until we get there respect your money for God sake!
- Silhouette 14y ago
  I just love armchair experts. You didn't need to be an expert for this one. You could have seen the inevitable dive coming with nothing but the most basic understanding of stock markets and concrete measures like the expected price/earnings ratio, without even referring to anything specific about how Facebook operates. And if you did consider anything deeper than that, applying the slightest common sense to where Facebook's growth has come from so far and the current global population for example, or looking at Facebook's dubious record with regard to building a sustainable, efficient advertising system to monetize their users, or keeping those users on-side with sensitive issues like privacy or just the everyday user experience, every single one of these indicators would have been a red flag. Did you ever think that maybe those investors aren't looking for a short term return and don't care about the stock price day to day. You know the type of investors we actually need more of. I imagine most people who bought Facebook were banking on an irrational market-driven rise in the early days followed by a quick cash-out. You know, exactly the type of investors we actually need fewer of. Anyone who made the slightest attempt to consider the fundamentals from either an economic or a business standpoint was on a different continent on IPO day. And if you actually were a little more creative you would see that Facebook doesn't have to bundle everything into the website. It can have separate brands like Instagram and grow into new markets that way. And with its sheer user base and content it would be able to decimate smaller competitors. Except that in something like eight years so far, they have no demonstrated record of successfully doing those things, so banking on hypothetical future values based on what they might do (assuming any of a dozen major tech firms don't each their lunch first) is exactly the kind of foolish speculation that drives a $38 starting point.

taligent 14y ago

I just love armchair experts. Did you ever think that maybe those investors aren't looking for a short term return and don't care about the stock price day to day. You know the type of investors we actually need more of. And if you actually were a little more creative you would see that Facebook doesn't have to bundle everything into the website. It can have separate brands like Instagram and grow into new markets that way. And with its sheer user base and content it would be able to decimate smaller competitors.

AlisdairO 14y ago
> Did you ever think that maybe those investors aren't looking for a short term return and don't care about the stock price day to day. You know the type of investors we actually need more of. That kind of intelligent investor was probably unlikely to buy in on a clearly overhyped IPO, in fairness.
- hkmurakami 14y ago
  You still could have sold at above $42 on opening day :)
- joering2 14y ago
  Yes agreed and +1. I believe it was Warren Buffet who said: on stock exchange, every long term investment is a missed short term investment. But obviously you wont find a person in his her sound mind (not to mention financial guy) who would say: hey lets buy now and even if it goes down 40% thats fine we are in it long run... (lol) Besides Facebook is a special example. It was banksters fraud perfectly executed. Yes Facebook makes money. Yes, it is self sustainable, yes it will pay off all its debts and creditors. Yes it doesnt go anywhere. But the overbloated IPO price with this PE was a freudster move. This stock belongs to single digit wagon. When it gets there, then consider buying for a $1 or $2 pop accordingly to good Q, but until we get there respect your money for God sake!
Silhouette 14y ago
I just love armchair experts. You didn't need to be an expert for this one. You could have seen the inevitable dive coming with nothing but the most basic understanding of stock markets and concrete measures like the expected price/earnings ratio, without even referring to anything specific about how Facebook operates. And if you did consider anything deeper than that, applying the slightest common sense to where Facebook's growth has come from so far and the current global population for example, or looking at Facebook's dubious record with regard to building a sustainable, efficient advertising system to monetize their users, or keeping those users on-side with sensitive issues like privacy or just the everyday user experience, every single one of these indicators would have been a red flag. Did you ever think that maybe those investors aren't looking for a short term return and don't care about the stock price day to day. You know the type of investors we actually need more of. I imagine most people who bought Facebook were banking on an irrational market-driven rise in the early days followed by a quick cash-out. You know, exactly the type of investors we actually need fewer of. Anyone who made the slightest attempt to consider the fundamentals from either an economic or a business standpoint was on a different continent on IPO day. And if you actually were a little more creative you would see that Facebook doesn't have to bundle everything into the website. It can have separate brands like Instagram and grow into new markets that way. And with its sheer user base and content it would be able to decimate smaller competitors. Except that in something like eight years so far, they have no demonstrated record of successfully doing those things, so banking on hypothetical future values based on what they might do (assuming any of a dozen major tech firms don't each their lunch first) is exactly the kind of foolish speculation that drives a $38 starting point.