The Weak Financial Performance of Social Media: No Surprise

28 Jul

On May 18, I wrote: “How can a company with SALES of  $3.7 billion in 2011 and projected annual sales of less than $20 billion as of 2016 be valued higher than Disney? Higher than McDonald’s? Higher than UPS? Higher than American Express?”

Thus, it comes as no surprise that after announcing the 1st quarter of financial results since its IPO that Facebook’s stock price fell to $23.70 as of the market close on July 28 — off a whopping 37.6 percent from the $38 dollar offering price. So, the question remains: What’s ahead for social media as a BUSINESS?

Many online firms that sell stuff — such as Amazon (even with its low earnings report) and eBay (which has strongly bounced back) — have well-conceived business models based on substantial revenues. The key for them is efficiency and cost controls.

But social media are a whole different ball game. Yes, Facebook and other social media sites are phenomenally popular. Who can argue that nearly a billion followers is not a huge number? Nonetheless, popularity and revenue are not the same thing. Even the most optimistic forecasts about Facebook’s revenues are quite low — and do not justify even a $23.70 price (in my view). And consider this quote from the Los Angeles Times: “Facebook will free up nearly 1.7 billion shares — four times the number now trading — starting next month as provisions that barred employees from selling their holdings begin to expire.” Where will that drive the share price?”

And let’s keep in mind that many legal battles lie ahead for social media regarding the privacy aspects of their drive to generate advertising revenues.

Click the photo of Mark Zuckerberg for a New York Times‘ article that discusses whether “Another couple of days like this and the great tech bubble of 2012 might recede into history.”
 

Photo by David Paul Morris/Bloomberg News

3 Responses to “The Weak Financial Performance of Social Media: No Surprise”

  1. Burton Haynes July 31, 2012 at 11:25 am #

    nice post thank you i love it!

  2. Lauren Grasso September 14, 2015 at 9:03 pm #

    I found this very interesting because I had no idea that data and in turn my privacy can be different if the company is sold. I guess I never really thought of it or honestly read the pages of information before I click on the box saying okay. I think this is a little troubling because the company that purchased the company that I may be doing business with can now act with my information in any form they chose to as long as it is legal and ethical. I can’t control if a company is sold however, I can control what I say yes to going forward.

Trackbacks/Pingbacks

  1. What Now for Facebook? « Evans on Marketing - August 16, 2012

    […] hate to keep piling on (see, for example: http://evansonmarketing.com/2012/07/28/the-weak-financial-performance-of-social-media-no-surprise), but today’s Facebook news continues to be a downer. Now, that many previously-restricted […]

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