FB Stock – The Biggest Threats to Facebook Right Now – The Slant

FB Stock – The Biggest Threats to Facebook Right Now – The Slant

Unlikable

Facebook (FB) is everywhere, with nearly 1.3 billion users according to its last earnings report. That’s means by this math, 1 out of every 6 people in the world use Facebook!

But here’s the thing: Just because the service is everywhere doesn’t mean that Facebook as a company or FB stock as an investment are destined to succeed.

Plenty of products with wide reach struggle to grow, and even the an entrenched business might find itself fighting tooth and nail to turn a good profit.

To me, I think people who like to use Facebook and then run out and buy FB stock are oversimplifying the very complex business of social media into a matter of personal taste.

If you really want to look at FB stock as an investment beyond whether or not you “like” the Facebook experience, here are some very real threats to take into account:

FB Dominance Will Be Hard to Maintain: A recent Princeton study posited that Facebook will lose 80% of its users between 2015 and 2017. And whether or not you believe this stat, it’s important to understand that most tech fads and social media fads wax and then wane. (Remember MySpace? How about AOL (AOL) Instant Messenger?) Already we are seeing Facebook face flatlining users in North America and Europe as the company reaches critical mass.

Facebook’s Marketing Edge Will Be Hard to Maintain: Facebook telegraphed to advertisers recently that expecting their stuff to circulate on FB on its own isn’t going to happen a lot, and that they will have to pay up for broader reach. Part of Facebook’s success has been its ability to monetize its users effectively, and clearly this is a bid to squeeze more from its current users. But stuffing more sponsored posts into the user experience and charging marketers more and more to use the platform will eventually reach a tipping point where FB becomes less attractive to advertisers … and that trend starts to show up in the bottom line. Similarly, there are reports that while Facebook is still valuable because of its sheer scale, other platforms like privately held Pinterest are much more effective at driving sales via social media, which might mean more bang for the marketing buck.

Sentiment Is Crumbling: Of course, my earlier point was that usefulness or dominance doesn’t necessarily add up to profits for investors. It’s important to notice that amid these headwinds to the balance sheet, there also are real headwinds for FB stock. Consider that shares are down about 17% from their 52-week high in March above $72, and high-growth tech stocks across the board — from Twitter (TWTR) to Amazon.com (AMZN) — are drifting lower. Even if all things continue to go well for FB stock in the next few earnings reports, this kind of negative sentiment could have a very real impact.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at [email protected] or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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FB Stock – The Biggest Threats to Facebook Right Now – The Slant

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