Don't invest in Facebook (FB). Now that I have your attention, I'll explain. With not enough innovation and no new ideas, Facebook will not fend off the competition and in some cases, it has given up. From connecting people, photos, news and immediacy, Facebook is failing on all fronts of being social. Each will be outlined below and in fact, immediacy is so big for me that is in two parts.
Facebook currently has a market cap of over $60B and revenue in the billions as well. With near 50% of the stock held by institutions and short interest declining, Facebook looks, on the surface, like it is doing okay. We can argue about the book value per share being WAY below the current price ($4.98 to about $28 as of this writing) and carrying a long-term debt of over $2B (yes, that's a "B"). But for now, Facebook is a household name and can afford to have some baggage in its financials. The name and high revenue helps Facebook stock stay relevant.
But that relevance needs innovation to drive more sales. Investors want to see growth in the company and the best way to drive growth is to come up with fresh ideas, new products and more customers/users. So what is Facebook coming up with and is it good enough to set it apart from other social media? Let's look at some competition and how Facebook is falling flat.
1) Connecting People - LinkedIn (LNKD), with a near $20B market cap, LinkedIn is big competition for Facebook. Primarily a site for connecting in the employment world, LinkedIn, like Facebook, lets you speak your mind with an update. But if you are a job seeker, you may not want to post that picture of that celebrity doing that thing. So the vibe there tends to be more professional (for the most part). And you don't see a lot of 12 to 14 year olds on there. Though, full disclosure as an investment, the $8.36 Book price per share vs. the about $175 share price should scare many people right now. Short interest has remained pretty steady for quite some time.
A big difference with Facebook though, on LinkedIn you are partially tracked, so you can't stalk that old high school fling as easily. There is a little more feeling of security for those who like that sort of thing. Quickly, on the topic of Facebook security, have you searched for news on that lately? To be fair, security issues have happened to LinkedIn too. I'm not saying either is worse but Facebook seems to be leading the charge in hacks, leaks and users not knowing their own security features.
And, of course, the big thing for LinkedIn is the actual job market. LinkedIn can tap a user into almost any company and connect for info, job opportunities and so much more. Facebook? I'd trust a job offer posted there about as much as anything from Craigslist.
To put it simply, if you want to be a professional something (not TOO scandalous), LinkedIn wins over Facebook. And I don't see Facebook competing in this arena anytime soon. This makes Facebook look more like a time waster than something productive.
2) Photos - You know that picture your friend just posted that looks like he ate an egg in 1972? That's basically Instagram. But boy do people love their 1972 eggs! Instagram has millions of users snapping photos, filtering them (if they want) and posting them all over the place. It is kind of like photographic graffiti on the web. Facebook embraces Instagram because it is easily integrated and Facebook doesn't have its own photo app. And there's the rub.
There are other sites/apps like Instagram and Facebook's way of dealing with these is making Facebook available to for a lot of these apps to be integrated. Take a picture on Instagram? Want to upload directly to Facebook? Facebook's there for you. The problem is Facebook is neither a leader or a follower in online photos - they are the Walmart Photo Center. They have no apps or ideas about photos, they are content to be a place where you can store and share them. Instagram does that too, by the way. So does Flickr. So does Photo Bucket. So does Shutterfly. So does...you get the idea.
So what is Facebook to do to show they can do something in the photography world? They can make photos...bigger? Facebook has given up here.
3) News & Immediacy- Twitter revolutionized the news industry in the way that information can get out there instantly. Something can trend as it is happening. It can be reported and quoted live in real time. It is the pulse of what is live. Or something like that. With the exception of these actual news events, Twitter is also basically a way for people to say, in a few words, how they are feeling. Usually people are mad at something.
Facebook lags Twitter in two big areas - audience and immediacy. If I post something to Twitter anyone can see it if they are searching for something I hashtagged (or a word in my tweet). Or one of my connections can see it in the updated feed (like Facebook). But the immediacy is the trump card. If there is a plane crash in (someplace), people on the scene or nearby can tweet about it and the nation can watch online as countless numbers of people give instant updates. By the time the news folk show up, people are crazy for information from their trusted news source (which, incidentally, used Twitter to figure out what was going on as well).
Does the news use Facebook for stories? Sure do - to get a quick picture of the person who did that horrible (insert news cycle atrocity here). But Twitter, that can go on 24/7 with instant reactions, current news, aftermath updates and continuing coverage, all without a commercial break.
Twitter can be an information overload where Facebook, in this respect, starts to look more like a place to hang with friends.
3.5) Immediacy Again - Notice I said "Hang With," I'll get back to that. MEDL Mobile (MEDL.OB) is a newer company that creates mobile apps, most notably, that perhaps ill-timed NRA Practice Range app released after the tragedy at Newtown. MEDL has a new app in Beta is trying to be the video version of Twitter. It is a doozy.
Hang W/ is an app that lets you broadcast whatever you are doing, wherever you are to whomever you want LIVE in 3 minute chunks. A celebrity is at a party and decides to let everyone in for 3 minutes, all followers can become spectators in real time. If junior is coming up to bat in little league, mom can broadcast it to the family live if they are not there.
With Facebook, you can share videos but they have happened. Also, if something happens in the video that you don't like, you don't have to post it. With Hang W/ if something happens live, it's live. So in this respect, it is like Twitter except your limitation is 3 minutes of live video instead of a certain amount of typed characters. That's immediacy.
Skype, FaceTime and other video chatting apps are great to use as a video phone and maybe, someday Facebook might try to create their own video call service. But I doubt that. I think they would go the way of photography and try to add it to their site instead of reinvent the wheel, thus giving up.
There are countless other companies out there making new strides in the world of technology, information and social connectivity. I haven't even touched mobile gaming, which aids in Facebook's status as a time waster yet it still lags in actual games and audience. And there are other competitors gaining steam, like Pintrest, Google+ (GOOG) and the list goes on.
Facebook, however, seems to be spinning its wheels (hey look, a different news feed, great), instead of coming up with legitimate, new ideas that push the boundaries of how the world can interact. Instead, it is turning more and more into MySpace or Friendster (anyone even remember that thing?).
With nothing new, Facebook won't get more users, revenue will start to come down and the financial baggage will start to become a lot more noticeable. The short ratio will go up and that will start to shake investors. Facebook has a lot of cash on hand to help out (about $9B) but that may start taking a hit as its spends its money on frivolous things like the news feed and making pictures bigger. Without innovating its product and spending the money on new ideas, Facebook is basically putting paint over a cracked wall.
So how will Facebook combat this lack of users? It will need to make more money with less people, perhaps by putting more ads in the newsfeed. Oh wait, that's already started. If this is all the innovation Facebook has, Facebook may become financially un-friended.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.