Why many investors are wrong about Facebook

Google first production servers

Google’s first production server rack, circa 1998
Source: http://flickr.com/photos/jurvetson/157722937/
Author: Steve Jurvetson

Those who suggest Facebook is a bad investment or a short-lived Internet phenom, I’m reminded of the quote attributed to Samuel Clemens, “The Rumors of My Death Have Been Greatly Exaggerated.”

I’m continually reminded by a statement I occasionally found annoying, “perception is reality”. I’m not invested, connected or do business in any way with Facebook. I’m also not an expert in business, finance and investments. I think the market has Facebook all wrong, and here’s why.

The right ideas at the right time. It’s possible to be ahead of your time and not be a financial success or have the basic idea fully worked out. The execution lacks evolution. In the Internet world one could argue that would be MySpace or perhaps Classmates. They are broadly similar to Facebook but lack the features necessary to compete at the level of Facebook. Yahoo sadly, is a historical example, perhaps more so than MySpace, that demonstrates starting out strong doesn’t necessarily keep you in the lead.

Facebook differs from those examples in that it has demonstrated not only the initial excitement of a widely publicly accepted Internet application, it has evolved through association with other popular attractions in shared games  such as Farmville . It has thematically improved presentation and a few times where it stumbled, Mark Zuckerberg leadership has backed off the introduction of a new feature.

The leadership of Facebook is young like Apple was in its early years which suggests strong progressive technology will continue making it a better long-term investment than perhaps other currently attractive and perhaps more settled technology stocks.

Facebook enjoys a wider demographic than many other interesting and useful Internet businesses. Twitter comes to mind in comparison. Twitter has caught on well but there are many people less adoptive of newer technology that find  Facebook connections easier and reaches an audience encompassing those who  play Angry Birds and those who post pictures of their favorite grandchild or special pet.

There are many arguments that suggest Facebook duped the investment community or the stock was over hyped. Keep in mind those with whom make such remarks are often those entrusted with promoting or advising on investment. They are the very ones who now have to look at themselves and ask the tough questions; were we duped, is FB a bad buy?

My thoughts are these; we live in a time where expectations for profit or investment come over night. The demand for instant gratification is also our undoing. The very core idea of buying stock has been the premise to hold long-term. So, the stock came out with a higher opening than it currently sells. This shouldn’t come to savvy investors as a revelation. I recall Yahoo once sold for over $100 per share. Google didn’t lose sight of their mission and I believe Facebook has an equivalent firm grasp.

Smart people are in the right place at the right time in finding opportunity. They do that because educated guesses are based on information which helps position people to be in the right place at the right time. Investors need to remember not to bite the hand that feeds them. Facebook is here to stay and will continue to evolve.

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2 thoughts on “Why many investors are wrong about Facebook

  1. Mike Livingston Post author

    I agree that no business stays on top forever but for the purposes of investment, seldom does anyone plan on that long range anymore. Furthermore, once a company like Facebook has garnered significant market share the cost for another company to gain share and compete gets much higher. Even more so, the number of personal connections, pictures and external links as they exist in Facebook makes it time consuming to switch.

  2. Chris Neighbors

    Great post. I think the one thing everyone needs to keep in mind is that new social media sites are popping up everyday. I personally think it’s impossible for Facebook to stay on top. They could buy these new sites, but that leads to different problem. I don’t see them going away anytime soon, but no one stays on top forever.

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