Has the social networking bubble popped?
Facebook's slowing growth disappointed investors, and its stock price hit an all-time low. Is the party over?
On Thursday, Facebook (FB) published its first earnings report since it became a publicly traded company in May, and things got ugly very quickly.
The social network's stock tanked in after-hours trading, losing 12%, and its slide continued Friday, when it fell below $23, hitting an all-time low. The company reported a quarterly loss of $157 million, and even when adjusted for IPO-related costs, Facebook's profit was a mediocre $240 million. (By way of comparison, Apple (AAPL) just reported a quarterly profit of $9 billion.)
Investors were particularly concerned about Facebook's revenue, which was up 32% from the previous year but down from the larger year-over-year gains the company had reported in previous quarters. Further, on the earnings call, Facebook was unable to satisfactorily articulate a strategy for earning advertising dollars from mobile devices, which are quickly becoming the main internet platform by which people interact with one another.
Has the social networking bubble burst?
Yes, and the fallout will spread throughout the tech world. The hype for Facebook has collapsed, a sign "that the second internet bubble is over," says Nathan Vardi at Forbes. The internet economy has changed drastically since Facebook first made its mark -- most notably with smartphones -- and that's why "many of the hottest tech companies touting social networking attributes" have been "stock market disasters." The "steep and rapid decline of the stocks" of Facebook and other tech companies -- such as Zynga (ZNGA) and Groupon (GRPN) -- are reminiscent of the great internet bubble crash of the late 1990s.
No, Facebook is wisely taking its time. Investors are disappointed that Facebook's "ad business is developing slowly," but that's actually "good news," says Rolfe Winkler at The Wall Street Journal. "Facebook's most compelling sales opportunity, putting ads directly in users' desktop and mobile news feed, remains in its infancy." But Facebook is smart to go slow: It has to "condition users" to receiving more ads "without driving them away."
And Facebook has other potential revenue sources. Outside of mobile, "Facebook is widely thought to have other channels to make money," says Somini Sengupta at The New York Times. "Its crown jewel is what its users share about themselves, including who they are, where they went to school, pictures of their children, political predilections, and what they read and listen to" -- all of which is gold for advertisers. "Facebook has been aggressively experimenting with how to exploit all this data," such as connecting user's "likes" to specific brands, and the results could be promising.
Sources: Forbes, The Wall Street Journal, The New York Times
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"But Facebook is smart to go slow: It has to 'condition users' to receiving more ads 'without driving them away.'"
The sort of consumers that have something to spend aren't the sort of consumers that hang around on Facebook. If not a freebie, few would have been on the site twice.
Now, try larding up the screens with beg boxes and banners. Watch the little starlings fly away.
Has the bubble popped? I hope so. Will it also end bubbleheads? I truly hope so!!!
Excellent comments all! The crappola must stop with all these social networks. Are not our "kids" dumbed down enough? We asked for this "allowing" this nonsense to continue and expand. Take away their cell phones and texting capacities as far as I am concerned. Yeah, they need those for security reasons...like a hole in the head! Get back to basics and have them learn some induction deduction skills.....the ability to think without contacting every person on your "friends" list. Get rid of Twitter, also. I do not want to see banks or business marquees referring to some d.... social website....follow us on so on and so forth. Let's get "personal", again!
I had a yummy omelette for breakfast. going shopping for underwear now. TTYL!
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