I’d like to start this post by saying I am absolutely not an expert by any means in evaluating stocks or IPO’s. While I have been an investor for years and done well with some stocks like Apple, BP, and Iomega when they launched way back in the day I would still call myself an absolute beginner when it comes to stock investing. So take what I’m saying more as market analysis rather than real business analysis, which for many will mean very little. Still, I have some strong opinions here and I want to get them out.
MorganLinton.com is about “Life In A Web 3.0 World” a world where I believe Facebook is a key player. I’ve been following what all the zillions of analysts have been saying about Facebook and how the valuation could be ridiculously too high. They could be right, but I think they’re wrong, and I think the examples they are using of similar companies could not be more far off. So here we go.
First let’s talk about the emotional investors. Yes, Facebook is invoking a lot of emotions in people and there are those who want to own the stock just for the sake of owning the stock. I don’t see anything wrong with this if these people are investing with money they don’t care about. We spend money based on emotion all the time and if it makes you feel good, and it’s not money you need to live on, go for it, that’s not why I’m investing in Facebook but it is a factor that I think will impact the price over the first 1-2 weeks.
Now that we’ve got that out of the way let’s talk about Groupon and LinkedIn and why these are terrible comparisons to Facebook. I have read so many articles where analysts use the decline in Groupon and LinkedIn stock as a barometer for the current state of IPOs. For me this honestly seems incredible naive and I’d like to talk about why.
I have not once heard a friend of mine say, “I keep getting distracted and spend hours flipping through Groupon deals.” Or, “I love being able to browse Groupon deals on my train ride home.” The same goes for LinkedIn, have you ever heard anyone say to you, “I think I’m addicted to LinkedIn?” or “I can’t go a day without checking my friends updates on LinkedIn?” My point here seems obvious to me which is why I’m surprised so many analysts don’t seem to get it.
Facebook is nothing like Groupon or LinkedIn. The way users interact with these services is completely different. LinkedIn and Groupon aren’t occupying hours of people’s time a day, or even more than a few minutes a day. Facebook is different, it’s something that people use constantly, at work, on the train, at home, on their computer, iPhone and iPad. This is a huge difference and makes this IPO in my humble opinion nothing like the Groupon or LinkedIn IPO.
Last, but certainly not least, let’s talk about Facebook Advertising. This is a hot topic for everyone since it’s how Google has been printing money for a long time now and admittedly so, Facebook hasn’t yet figured it out. Here’s the thing though, Facebook has way more data than Google will ever have about their users. While they certainly have not yet unlocked the secret to how that data can translate into more effective advertising for companies, that doesn’t change the fact that they have the data, and they are one smart company. Just because they haven’t made the breakthrough yet, doesn’t mean they won’t and at the end of the day I think it’s leveraging this data and doing it the right way that will make all the difference.
So take a break from looking at all the financial data, or comparing Facebook to companies like Groupon or LinkedIn and let’s say it like it is. There has never been any company in the history of the world with the same kind of data, and same kind of user-base and stickiness that Facebook has. This means that looking at other companies to understand valuation, or what might happen after the IPO is really just a shot in the dark because this isn’t anything like other companies.
I am making a sizable investment in Facebook myself, but I’m waiting until all the buzz dies down so I can see what this is going to settle at. Also, while I am making a nice-sized investment, it’s not money that I need and if Facebook goes to $0.000/share my life will not change in any way shape or form. Is it a risk? Absolutely, but I’m not doing it based on emotion, I’m doing it based on a belief that what Facebook has built is more than just a company like Groupon or LinkedIn, they’ve embedded themselves into people’s daily lives and if they unlock the power of the data they have and put it to good use in the advertising world, I think the reward is incredible.