Why Facebook is Headed Much Lower

RickAckerman's picture


Facebook shares took another hellacious dive last week when the lock-up period for insider selling ended on Thursday.  Gluttonously coveted by investors in the months leading up to the IPO, the stock has become a pariah after falling 50% from its $38 offering price in May. Was it jinxed from the start, as some have suggested?  It is indeed true that technical gremlins on Nasdaq plagued the order book the day Facebook went public. And although some sore losers have sued to get their money back (if not their hands, belatedly, on fire-sale shares) the exchange glitches seemed to us like business as usual. Facebook’s real problem is that it is just another Internet fad that will probably never earn a profit commensurate with the $100 billion valuation it was given by IPO buyers.



Looking on the bright side, the hugely hyped public offering served the Darwinian purpose of shifting vast sums of capital from exuberant imbeciles to clever mountebanks presumably able to put it to more constructive economic use.  However, the amounts at their disposal are apt to keep shrinking as more and more speculators abandon the stock.  Readers may recall a prediction made here a few weeks ago that FB would fall to at least $13.97 before finding traction. That would represent a further decline of 27%, based on Friday’s $19.04 close. Even then, we would expect still lower prices to follow once the stock has taken the obligatory dead-cat bounce. But if our initial forecast pans out, FB shares will have lost nearly two-thirds of their value since the company went public.



Advertisers Skeptical


Would-be advertisers were skeptical from the start that Facebook would deliver great returns for their marketing dollar.  Even so, they are apparently having trouble wrapping their pseudo-scientific minds around the counterintuitive notion that a Web-based company with nearly a billion subscribers can’t find a way to monetize all those eyeballs. For its part, Facebook hired away Microsoft marketing hotshot Carolyn Everson to convince Wal-Mart, Coca-Cola, Unilever et al. that Facebook buzz can actually boost their sales. Now, most of us understand that five-hundred-thousand “Likes” for Coca-Cola on Facebook are not necessarily going to sell even one additional can of soda pop. But ad-men do not think that way. They truly believe in their hearts that it will always be possible to increase sales with the right pitch. Thus, to a company struggling to sell term insurance in the aftermath of thermonuclear war, an ad-man might say, “Don’t sweat it!  Instead of focusing on the war and the resulting destruction of civilization, tell your customers about the benefits. Tell them about the security that a good term policy will bring to survivors.”


This can-do spirit may have found its apotheosis in Ms. Everson.  “I love being challenged,” she told a Wall Street Journal reporter. “When people doubt us, that’s when we’re at our best.”  Undoubtedly. To make good on her vow, she has dispatched teams of Facebook researchers to talk with ad-men around the country to determine the best way to prove to them that Facebook is an effective advertising medium.  You’d think that her boss, Mark Zuckerberg, would have given the matter a great deal of thought by now, but you’d be wrong. At a recent meeting with some advertising heavies, they all wanted his assurance that they’d get a good return on their investment if they committed to spending big money with Facebook. Zuckerberg’ s reported response: “That’s a great question, and we should probably have an answer to that, shouldn’t we?”  Well, we can provide the answer ourselves:  Although Facebook is undoubtedly an excellent medium for putting targeted ads in individual customers’ faces, doing so will increasingly annoy those customers, driving them toward whatever next big fad awaits in the social networking arena. This was the clear implication of reported discussions between Facebook and big would-be customers.  They pressed for more data about exactly whom they were reaching, and Facebook obliged by giving up the kind of information that users are going to feel increasingly uncomfortable divulging.  (“Facial biometrics for 500 million users?  No problem-o. Coming right up!“) Trying to safeguard users’ privacy while telling advertisers all they want to know cannot be done. And that is why we see the stock going much lower after it bounces, perhaps sharply, from $13.97.

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hannah's picture

i think FB should compensate everyone maybe by giving them each a billion shares of stock to make up for the loss.

P.T.Bull's picture

There is also the small matter of missing sustainable competitive advantage. Who among us remembers the previous 'main' social networking site, myspace? Investing long on fashion remaining constant over time?

 Anyhoo, lost enough money in the first technology bubble--not itching to ride the next one down.

Bear's picture


Wait ... wait ... the SEC will call for a moratorium on FB selling at the request of Jerry Brown


Divine Wind's picture



"Advertisers are skeptical"


I own two businesses, one of which maintains an active Facebook presence.

I have a check in my soul about paying for advertising on the site.

My concerns about something being amiss were validated with the piece carried recently on ZH regarding Facebook's ad model scam.




That article actually pissed me off.

It just seems like EVERYTHING is a fucking scam now.

The last 20 years of heavy liberal influence in this country has decimated concepts of personal responsibility, honesty, integrity and a moral code.

The sad part is that these specific problems will take generations to reverse, if ever.

Personally, I go into everything now expecting to get fucked or scammed because it is so commonplace.



swissbene's picture

i agree with you that fb sucks but i think that article is pretty misleading.

click fraud is a real problem, however the 80% number does not seem reasonable.  my guess is 'limited run' co made a mistake in their analysis.  they seem to have backed off the claim.

click fraud is not a fb scam because it does not really benefit them financially.  advertisers determine ad prices by setting a bid tied to the value they perceive from the impression/click.  if 80% clicks are bot then everyone would bid 80% lower.

the reality is that fb ads/clicks are low value but this is not primarily due to fraud.

prains's picture

13 year old girls although a powerful force in family discretionary spending, they unto themselves can't give fartnook the necessary cash flow to make it a viable business model because their parents won't release the funds for such bullshit

swissbene's picture

unfortunately the parents are engaged in fb bullshit directly.  'adults' now make up significant majority of users (in US, most important market).  user growth is actually coming from 40+ age group.  teens are departing for the next cool site to broadcast meaningless, self focused drivel (tumblr, apparently).

user demographic breakdown (old data but shows the point):


commentary on age shifts:


the reason why facebook revenue model is a failure is that users are not engaged in commercial activity when doing whatever it is they do on fb.  so higher value direct response ads are not a good fit.  they can have plenty of branding ads but these are (a) difficult to measure ROI; (b) not suited to text format; (c) disruptive for user experience when large/graphical.

so they have no path to high value ads* and will lose volume over time as users eventually leave.

* note: according to the executives, the high value is there its just that advertisers need to reinvent themselves and their understanding of value around the amazing opportunity that is fb.


Zuckerberg doesn’t want ads to be strict marketing messages but instead “Interesting content from people you care about” with the goal of  ”getting advertisers to add value to people’s experience on Facebook.”




Facebook COO Sheryl Sandberg said during that conference call that “attribution is an issue. Marketers need to tie sales back to multiple touches; they may see on Facebook and search later. Our ads work and the ROI is there, so we’re focusing on education.”



Bear's picture


13? My daughter teaches 32, 4th graders and she received 20 friending requests 


P.T.Bull's picture

Perhaps it encourages learning to read and write, though such skills appear somewhat rare among adults on phish-book.

dlmaniac's picture

Since when FAD could turn into sustainable business? Sucker FB holders have themselves to blame.

robnume's picture

Facebook is making sure that people who criticize the U.S. gov't. are going into mental institutions, including indefinite detainment. Social networking is stupid and extremely dangerous. Facebook makes sure that your first amendment rights bite you in the ass. Why would anyone give out personal info to fascist thugs posing as entrepeneurs. You folks need to read history, sociology, psychology and SAE. GET OFF OF FACEBOOK!!! Otherwise, Jump, fuckers, jump!!!

max2205's picture

And the first of many fb upgrades came today.

Haole's picture

There just aren't enough opportunities to spite Charlie "I see FacePlant as a $1000 stock someday" Biderman, and any other Alpha Hotel pumper of this fiasco, over one of the biggest financial scams/equity frauds/serveillance tools/data mining operations human civilization has ever known.

flattrader's picture

I am working on a poltical campaign and have an outside group trying to muscle in on the action for their own PR purposes.

I recently had some late 20 something trying to verify some info I told him about myself by looking on FB.  He was surprised when there was no info.

I explained to him that I valued my privacy. He looked at me quizically...

I also explained that anyone who needed to know certain things about me and my capabilities already knew about them...and he wasn't among that group and good luck trying to muscle in on the action.

And while we were having this discussion about some kind of FB verification of my claims that he though should exist and vetting my political creds, I had already stabbed him and the group he represents in the back by beating them to city hall and then court house...and he didn't even know it.

It was sweet.

"Age and Guile Beat Youth, Innocence, and a Bad Haircut."

Hey, kiddies. Get your face out of Facebook because us old fuckers are going to stab you in the back while your hunched over your laptop.

Note:  I have three computers including a lap top...and I don't rely on my smart phone to provide me with a calendar that I can't use properly to count the days before an important filing deadline starts...Ooops.

Azwethinkweiz's picture

Atleast when I signed onto AOL, I was greeted with a friendly. "Welcome! You've got mail." With Facebook, I'm just bombarded with a bunch of annoying people I've never met, who claim to be my friends, asking if I'll follow their same obnoxious status updates on Twitter. The only thing "social" about social networking is that regardless of whether I interact with people on the Internet or one-on-one, in reality, they still irritate me to no end!

chrispycrunch's picture

In hindsight, making up your own metrics and implying that metric has a correlation to revenue tricked many. As investors are now aware, MAU means a lot more going down when partner MAU figures are dropping (ZNGA).

Precious's picture

Just remember that Facebook has the highest user minutes by 3 to 4 times its competitors.