The Facebook Bubble

Posted on Updated on

An economic bubble can be defined as an overvaluation of a product or asset.  In the case of Facebook and its looming IPO (initial public offering) this week, I want to describe three potential bubbles relating to facebook.

First is in the literal sense.  By most estimations, Facebook will have the largest IPO in history: $100 Billion.  Simply, Facebook stock may simply be overvalued.  With an inflated price, a classic bubble burst may be on Facebook’s horizon.  The rationale for the inflated value may be because of two social networking bubbles.

Facebook uses each user’s personal information to sell ads.  That’s how Facebook makes its money.  Their ads are targeted based on users’ likes and clicks; they can sell their ads for a higher price because of the targeted audience.  The bubble occurs as more people become fed up by the exploitation of their personal information.  Once this practice becomes more common knowledge, I believe there will be an exodus from social networking sites that are simply shills for data gathering.

The third potential Facebook bubble is a mass departure by the people who were Facebook’s initial constituents.  Now approaching their thirty-somethings, the college students that Facebook originally targeted may be bored by a decade of the social networking site.  Many adults (mainly forty-plus) are only on Facebook because of their children.  Maybe the hype will catch up with users who are departing their roaring twenties where sharing everything was a way to connect.  Those users are now entering into their adult lives and may no longer feel the need to constantly share or to delve into their friends’ every matter.

Whether Facebook repels users by sharing their information or users finally lose interest in social networking, the company faces many unknowns while it emerges as a public company.  While twenty years from now Facebook may be the largest company in the world, if I had to put money on it, I would bet that we all look back and see Facebook as an another instance of a dot-com bubble.

Advertisements

One thought on “The Facebook Bubble

    Ev Bishop said:
    May 18, 2012 at 8:02 pm

    I agree! The events of today prove your prophecy. 1) the privacy class action suit, and 2) (as reported by AOL) The record will show that Facebook stock ended its first day of trading at $38.23, a gain of 23 cents above its IPO price. What it won’t show is the unbelievable effort by its underwriters to hold the stock price above the $38 level for a huge part of the day. The stock price improbably held right at $38 for most of the entire final hour of trading, and it briefly touched $38 early in its first minutes of trading. Like a pilot at the controls of a jumbo jet that’s lost three engines and its autopilot, the underwriters — including Morgan Stanley and JPMorgan Chase — wrestled and sweated to keep the stock at altitude. That’s not a great sign for the stock’s future, according to research firm PrivCap

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s