Well, the stock was hardly a day old before Facebook’s new stock owners fell to earth with a crushing thud as the stock tumbled 11% to $33 on Monday.
We wrote earlier here about how overvalued Facebook was, at 106 times earnings, comparing it to a Ponzi scheme. Brian Wieser of Pivotal Research Group downgraded Facebook to a “sell”, with a $30 price target on Friday. Wieser described Facebook as “overvalued on a fundamental basis”, citing examples such as rising operating expenses, unproven ad model and acquisition risks (e.g. the Instagram acquisition).
Most seasoned web advertisers who have used Facebook advertising, like myself, have walked away from it due to its ineffectiveness. GM just discontinued its $10 million advertising campaign on Facebook.
Facebook’s advertising in no way comparable to Google search advertising. The $3.7 billion a year they currently make in advertising is likely going to fade after a surge of “triers” try it and walk away.
Guess who will benefit at the end of the day? Google of course, as most of the new advertising money comes their way.
How to make money will be a real conundrum for Facebook. James Hughes, chief market analyst at London’s Alpari, said “the real value of Facebook is not likely to be known until the hype of the IPO has died away and investors have been able to digest how the company is going evolve to be the money-making machine many expect it to be.”