Questions you should ask your self before buying and trading Facebook shares .-
After it's mediocre debut one has to wonder if Facebook is worth the risk.
Now that the expectations of a highly profitable IPO are practically dead, we need to take a closer look at the facts and ask our selves some questions that can help us make the right trading decision.
As of today Facebook has 900 million users and it's currently priced at $38. . . . . So does that mean that it can rise only up to $76 when it reaches 1.8 billion users? Is that the future upside potential?
There is just one planet with a limited amount of users and FB has reached 13 percent of that planet so far . . . . So could that mean that if it reaches the rest of the planet their price would only rise 8 times more up to $304?
Many investors say that it's all down hill from here for FB . . . What if people start spending time in new places on the web? What if some new website starts grabbing the attention of teens and younger people in a few months from today? Remember what happened to Myspace.com? They practically went bust in no time. Could this happen to Facebook to?
Many new consumers specially teens, already think that face book is an "old thing of the past" . . . Does that mean that the next generation of consumers won't even look at face book?
Besides there is no clear sign of how Facebook will start generating profits . . . . And this sounds crazy, because even if they do "have 900 million users" they still don't know how to squeeze more money from most of them . . . Now that face book is a public company, investors are going to start pressuring them to make more money. So what happens if FB doesn't generate more profits in the short term?
Investors are already wary about Facebook because of Friday's mediocre debut . . . .. So being things as they are right now, do you really think current investors will go soft on Facebook and give them another chance? How many chances can investors give? Can traders and investors afford to wait months or years until Facebook comes up with new ways of making money?
We know that there are many people who think that FB will keep getting more profits from advertising, but at what cost for FB users? And how long will it take for this to happen? Facebook certainly felled short on hype and the investing world is tired about hype . . . The cold truth is that traders & investors now want short term results. As a matter of fact we want fast results and no more promises of "the good days to come" . . . So how is Facebook going to deliver those results in the near future?
The closest thing to FB is Google. So for the sake of comparisons let' s make a quick comparison of their financial numbers:
Google is valued at about 200 billion, while Face book is currently valued at nearly 100 billion, yet Google generates 10 times more revenue than Facebook . . . So how is this right? Do You think face book is going to be able to increase 10 times more revenue within a year to justify it's current or future valuation ?
You think the big money players aren't asking themselves this same questions? Well, think again.
Don't get me wrong. Face book is already making a lot of money, but not enough money to justify it's current valuation. And what's more disturbing is that even with all of those "900 million users" they aren't making as much money as they should.
Many people say FB is well past it's high-growth stage and there's not enough more users they can add that can make a difference to their bottom line. After all these years Facebook hasn't been able to successfully monetize their users . . . So what makes you think they will do it in the near future?
Facebook currently makes money from advertising . . . OK, so ask your self these questions: How many people turn on their pc or laptop and go there to buy stuff? How many of you get excited about clicking on their little ads? Why do you go to face book anyway? Are you in a buying mood when you log on to facebook?
So many questions to answer and so little time to make a trading decision.
If only face book had priced their IPO below $10 it would have had a much stronger case to justify an upside potential in the short and mid term.
Facebook's IPO was a big disappointment for almost anybody, but I can't say I am shocked given it was so overvalued on the first day . . . And despite their mediocre debut, they became the third largest IPO in US history, which ultimately demonstrates there is a huge interest in New Hot Stocks.
Fortunately, there are better stocks You can trade that are ready for a profitable breakout.
And they aren't necessarily IPO'S.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.