From what I understand, Facebook's main problem is a lack of a stable income source. It's becoming more and more apparent that advertising is not going to be the panacea that it was thought to be, what with numerous studies showing poor facebook ad performance and companies like GM pulling their facebook ad campaigns altogether. Sure, they booked $1B last quarter, but annualizing that number requires some confidence that they can pull that off regularly, and I don't think people have that confidence. As an investor, I'd be worried.
I think Facebook's isn't stable income. I think they've got ads and their credits system. They have had stable revenues with a pretty consistent 25% margin. I feel FB is a large and stable company.
Facebooks issue is one of perception - one they help perpetuate. They've continually been thrust into the top-tier of tech companies (Apple, Amazon, Google, MS) and the Facebook "problem" is that right now they not. They have the lowest market cap today of any of these companies, (besides having the largest P/E outside of Amazon). And what they don't have a is clear path to how they're going to grow revenues in a manner which will keep them on pace with a Google or Apple.
Building a 25-50 (I think FB is going to continue to slide) billion dollar company in 8 years is an unbelievable achievement and is why people will continue to invest heavily in early stage tech. I think the effect on startups is that VC's and later stage investors have always assumed that users == money. Twitter and Facebook have both raised billions of dollars using this formula. I think this belief is going to be shaken a bit by Facebook's trouble's monetizing their user base. But maybe thats just a reality check that Silicon Valley needs.
As much as I think FB's valuation was high, they have the advantage of having a Product That People Really Want. This means that they have a lot of room to adjust their business model (so long as they don't screw up the UX/product while at it).
Contrast this with GroupOn, whose product IS the business model...
Their valuation assumes that they will be doubling income many times over.
Most people (such as your post) completely ignore that, and focus on a good brand that is Facebook, and how the internet revolves around this company now.
with a P/E ratio of 85 it is priced as HIGH GROWTH stock. this means that you are paying $85 for $1 of profits.
Meanwhile FB is having hard time continuing its growth because everyone is already signed up (1 for every 8 people in the world), so they try to increase revenue by attempting to keep users on longer, making the service more intrusive and annoying to a portion of its inhabitants.
I'm no financial analyst, but I don't see above as sufficient to multiply its revenue and live up to the hype that is it's stock price. They would need to make some really breakthrough moves to do this.
> If you're not paying for it, then you're not the customer; you're the product.
Facebook's product is it's database of user information. If the actual customers, which currently consist mostly of ad companies, aren't interested, then they have a serious problem indeed.
While there is a nugget of truth in that quote, it is also a vast simplification. There is a (somewhat) symbiotic relationship between FB, you, and FB's advertisers. If any one of them are abused too badly, the combined organism will die.
That means FB has to create a product people are interested in using and has to protect their privacy just enough while giving their advertisers what they need to successfully market products.
This god-awful meme assumes 'payment' is made only in cash, fails to grasp the nuances of marketing, sweeps aside the subtleties of non-cash transactions, and is such a silly oversimplification that it is almost entirely meaningless.
Facebook's product is ultimately their users via their ad platform. Their users don't really make them any money, it's the advertisers who are paying FB.
In terms of having a Product That People Really Want (ads), it appears there's mixed emotions about that currently.
I think arturadib was talking about the user-base BEING Facebook's product.
You are correct as well, when you say that the user-base is their competitive advantage. It is a competitive advantage in the production of their product... a centralized pool of users.
You are mistaken, however, to categorize the UX as the product. The UX is simply a clever widget used to build the product... again, a centralized pool of users.
