Why Facebook Is Poised to Fall Back
Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, social networking giant Facebook has received a distressing two-star ranking.
With that in mind, let's take a closer look at Facebook and see what CAPS investors are saying about the stock right now.
Menlo Park, Calif. (2004)
Internet software and services
Founder/Chairman/CEO Mark Zuckerberg
CFO David Ebersman
Trailing-12-Month Return on Equity
$10.3 billion / $2.2 billion
Sources: S&P Capital IQ and Motley Fool CAPS.
On CAPS, 36% of the 1,876 members who have rated Facebook believe the stock will underperform the S&P 500 going forward.
Now that FB is back above its IPO price ($38), I'm compelled to go thumbs-down for the second time, mainly for two reasons:
1) At a close to $100 billion market cap, FB faces a huge technical hurdle in its ability to beat the market.
2) More importantly, I see a fundamental problem that I don't think the company can surmount. Every attempt by FB to monetize its enormous user base must undoubtedly come at the detriment of its user experience. People don't go to FB to find products and services (as they do with GOOG, YELP, AMZN, LNKD, etc.). They go their to socialize, communicate and learn about friends and family members. FB's latest push to use video adds is just another reason to longer use FB for that purpose. I think that ultimately leads to lower user growth and lower usage per user (which then leads to lower ad spending on the platform).
Until I'm convinced they can solve for #2, I'll maintain an underperform.
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The article Why Facebook Is Poised to Fall Back originally appeared on Fool.com.Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Facebook, Google, and LinkedIn. The Motley Fool owns shares of Amazon.com, Facebook, Google, and LinkedIn. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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