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?

By TheWeek.com Jul 30, 2012 8:34AM

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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16Comments
Jul 30, 2012 11:40AM
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Facebook is the bain of our society. People spend hours messing with that crap instead of working or personally interacting with friends and family! And the dribble that gets posted is unbelievable! And be ready to login and show your facebook page to future employers....my son is interviewing and many have asked him to login to FB so they could view his FB wall and pictures...unbelievable!  Oh and how many people to you see just staring mindlessly are their smartphones...unbelievable...the brain washing of the masses!
Jul 30, 2012 9:28AM
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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.


Jul 30, 2012 12:16PM
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Has the social network nightmare popped? God, I hope so. Talk about weapons of massive destruction, you put an idiot behind the wheel of an automobile or in a management role or a relationship commitment or just about anything that requires commonsense and maturity... add a handheld device with messaging and you get a society that can count it's remaining days. How many deaths from texting? Bully-posting? How many Olympic athletes are reprimanded or going home for twits (oh, I mean tweets)? Would there actually be Kardasians, Hiltons, Kuchers, Beibers or any other hollow-headed non-celebrity without electronic life enhancement? People can't write whole sentences or spell now and yet... we're whining about teachers and falling GPAs. I think the social network caused the massive job terminations during the middle of the last decade and can start writing reconciliation checks to victims-- starting today. Don't get me wrong... the Internet has some merit and likely more uses once we purge social networking at get back to responsible civilization management.

Has the bubble popped? I hope so. Will it also end bubbleheads? I truly hope so!!!

Jul 30, 2012 9:48AM
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I think just another passing fad. There has also been danger associated with Facebook and other social media where people have had identities ripped off and pictures used for illegal purposes, I have a friend who has had that experience and it was a nightmare to deal with. The FBI could not even trace the people perpetrating the fraud as they were overseas. Putting too much information out online is not safe.
Jul 30, 2012 12:16PM
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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!

Jul 30, 2012 12:11PM
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I hope so.  I wish Face Book would just disappear from the earth for good.   I think that those involved in Face Book saw the writing on the walls when they put it out there to the Public.  It was their last ditch effort to get money out of something that probable was no going anywhere.
Jul 30, 2012 11:58AM
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Bunch of losers on FB. Get a life!  Asinine....
Jul 30, 2012 11:42AM
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The cause of death listed on Facebook's death certificate will be "Timeline."
Jul 30, 2012 12:57PM
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I closed my barely used FB account when the Zuckerburg/ stock offering/ clusterf*** occurred. Don't want any part of it. But I do think it's funny you suckers lost money on NOTHING!! THERE IS NO PRODUCT!!! Serves you right.
Jul 30, 2012 1:29PM
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FACEBOOK is nothing but a "fantasy" for some people who have nothing productive to do.  They need to get a life, goto work do something worthwhile with their lives. 
Jul 30, 2012 11:43AM
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Within 2 years there will be something "cooler" and FB members will no longer be actively using the service (like MySpace).  The push to "monetize" the mobile users will be a major turn off, especially to the younger demographic that is vital to making FB viable.
Jul 30, 2012 12:48PM
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FB is ok to get in touch with old friends , maybe promote your company , but not to put up every detail on your life , marriage divorce every person that pissed you off or hurt you , what your having for dinner...its a fun tool for the correct application not you life story! 
Jul 30, 2012 12:42PM
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I had a yummy omelette for breakfast. going shopping for underwear now. TTYL!

Jul 30, 2012 1:20PM
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Like me! I'm so lonely....Please, everybody, LIKE ME!!!!!!
Jul 30, 2012 2:04PM
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Facebook is nothing for sure.  The owner has given up US citizenship and taken money out of USA.  He is UNAMERICAN and does not deserve to hace facebook up and going for sure.  Besides him and his staff love to steal the IDs of the people on it.  They did it to me with the three different accounts I use to have with facebook.  SOOOOOOOOOOOOOOOOOO stopped using facebook totally and won't use it again.  They are jerks and crooks for sure.
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