Big news in tech was the announcement of Facebook’s IPO. This IPO has been highly anticipated by hopefuls for years. Many people just want a piece of the social media pie, as seen with the LinkedIn IPO.
With such big names stepping out of the shadows of the private company realm, and stepping into the light of the publicly traded, I have to say that I’ll be sitting this one out.
There are probably 100 hundred reasons people will give you to invest in Facebook, and in all honesty, it could turn out to be an awesome investment, but I have 5 reasons why I won’t touch Facebook stock unless it is given to me.
1. Consumer Trends
Do you remember Yahoo Chat? AOL? How about Friendster, Xanga, LiveJournal, or Myspace? All of these companies were well known social sites in their own regard. Each of them is left as a hollow shell of what they once were. They stand timidly in the shadows of their former greatness. Each company was left for the next in mass exodus after mass exodus for the next company with a cool idea.
Consumers are fickle, especially when they aren’t financially attached to something. All it takes is one company to come out with a better product or a better system. When you’ve got hungry companies like Google, Yahoo, and Microsoft looking at you, there will be an unending power struggle.
2. Uninformed Hype
I walked into an office and heard some people saying “I think going public means they’ll be selling stock.” Followed up by “Facebook is going to sell their stock? I’m In!” I’m not an elitist in any definition of the word, but a certain truth exists in what Joseph P. Kennedy Sr. said about an experience he had while getting his shoes shined:
“It is time to get out of the market when I receive stock tips from a shoe-shine boy.”
I think it is great for people to get interested in investing, and learning how to do it properly, but the conversation I walked in on was people talking about tossing their hard-earned money into the stock market just because they’ve heard of a company and used their service. That isn’t stock investing, that is gambling.
A Facebook IPO guarantees one thing: There will be rampant speculation not only by people who know what they are doing, but they will probably be outnumbered by speculators who have no clue what they are doing. That means the stock price will be driven up unnecessarily, and without warrant.
3. Privacy Revolution
While this is less likely, it is certainly a possibility, and we’ve seen bouts of it pop up. Privacy revolution is certainly a real thing. People are often startled when I can type their name into a website, pull up their address, phone number, and immediate family members.
All it takes is a real scare to have people leave Facebook in droves. An attack, such as the one mentioned below, could be just the thing to completely ruin Facebook’s business. We hear privacy advocates constantly in the media talking about the dangers of Facebook. If those danger’s are ever realized, it could spell doom.
4. Cyber Attacks
Cyber attacks rarely occur (done with the sarcasm). All it would take is one simple breach of Facebook to have all the very personal data stolen. If publicized well enough it could trigger my concern #3 (Privacy Revolution). If it doesn’t, a proper attack could cripple their infrastructure entirely. No infrastructure, no Facebook.
5. Government Intervention
Depending on on how things continue moving, government intervention could become a problem. With a lot of the very loose cyber-bullying legislation constantly being proposed, and the government’s need to intervene where it ought not to (Durbin Amendment Anyone? By the way, I was right, it isn’t saving consumers money like they promised) we could easily see government hamper the success of Facebook.
Examples of legislation that could destroy Facebook:
Are there reasons to consider investing in Facebook? Absolutely! But I won’t be partaking. Each of the reasons I listed above are perfectly real, and I’m sure that some combination of them will exist and affect Facebook. Will it take the company down? I don’t know, but there is a good enough track record with their competition that I don’t anticipate finding out.
