Why Facebook is not a good buy

TG and friends chat about Facebook’s recent plan for initial public offer (IPO) during the weekend. We both feel that the leading social media company is not a good choice to buy now.

Unlike Google, Facebook cannot show us a core and unique technology that will bring shareholders steady revenue. With a high 100 times PE, Facebook can promise you what?

Many emarketers know that banner advertisement in Facebook is not very effective. Although promoting brands or products in Facebook is cheaper, many would opt for search engine operators such as, Google for higher click-through and conversion rate. If we are looking for free marketing initiative, forums, bloggers are still at stake and most handy in Hong Kong.

Facebook sells us the number of active users and boast of its new marketing concept of “Likes”, we admit that they are interesting but now we don’t see how good they are for business. In what way they can generate revenue for medium and long term? The measures of number of active users and Likes are very much similar to pageviews, unique users visits and time on sites. As we all know that these benchmarks are fairly fragile, unpredictable and require a lot of effort to maintain from site operators.

To continue its growth, Facebook inevitably finds opportunity in China where internet users are growing quick. For now, Facebook founder Mark Zuckerberg seems not making any progress. We learn it very clearly that China has little flexibility in dealing with its western internet companies counterparts. China is also known as a super copy cat in the internet world. Its social media networking sites are learning and evolving fast in the last few years. How Facebook to take charge of the ”green pasture” is still unknown to us.

Our conclusion:

We think Facebook share price will still go up on the first few trading days. Our concern is can we buy and sell swiftly enough.. Probably not.

If still have money to spare, find something more “real”

Facebook-IPO-presentation by Mark ZuckerbergFacebook users demographic hot map

What we learn from 200o Internet Bubble burst?

You may feel we are not optimistic here but one should remember that back to 1995, many Internet companies emerged due to investors’ strong belief on profitable opportunity boosted by new technology, new user behaviors and new business models. With easy and new funding pouring into internet companies and dot-com start-ups, NASDAQ hit historical high to 5,046 on March 10. It takes more than 6 years to regain 50 per cent of its all-time high.

Fear of being left behind by investors coupled with Dot-com start-ups unproven business models, revenue streams and unique technology led to the ultimate failure in 2000. The catastrophic Internet bubble burst was triggered when a massive sell order of leading Internet stocks – Dell, IBM, Cisco kicked off a big wave of shares liquidation.

Many lost their jobs, companies went out of business and large or small investors, regardless of long-term, medium-term or short-term investors suffered from big loss . In Hong Kong, TG witnessed what happened on PCCW, which is not a very nice memory to many of us.

Best wish to Facebook and his team

Launched in 2004 Feb 4th, Faceook has 845 million users worldwide as of Q4 2011. Both TG and my friends wish Facebook every success in the future even though we don’t recommend buying it now. But as one of the internet surfers, we believe that Facebook has already made an inroad to Hall of Frame. We also hope they can bring us new surprise, new dimension and model.

Stock code: FB
Listing: yet to be announced
Main business: to provide social networking services
Issue Price: not yet available
Financing: up to $ 5 billion
Number of shares outstanding: not yet available
Lead Underwriters: Morgan Stanley
Controlling stake: Zuckerberg 28.4% stake, institutions Accel holding 11.4%.
Fund-raising purposes: to supplement working capital and other general corporate purposes.
Earnings: 2011 revenue of $ 3.7 billion, net profit of $ 1,000,000,000