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Is Facebook a Golden Apple or Poisoned Apple?
Posted by: Muhammad Bazil (IP Logged)
Date: March 27, 2013 11:21AM
Claiming to have over 900 million users and climbing, Facebook (FB) has become one of the largest social media networks on the Internet. When one adds the numbers together, the usage number comes to 13% of the world’s population. That is quite a lot of users. Facebook has capitalized on this large number of users by doing what other media sites such as GOOG and YHOO have done. They offered stock. One would think that the availability of Facebook stock options would be a good thing, but is it really a wise for investors to buy in at this point in time? The answer is yes, but with a potential negative side. Let us look at this more closely.
First, Facebook Stock is doing well. My research shows that Facebook shares are going for $25.74, up 0.12%. Nasdaq reports that Facebook Inc. stock has hit a high of $45 this year with a projected year’s target of $35. These are not bad prices for a piece of social media stock.
The potential for an increase in stock value is substantial especially when the company is expanding its horizons to not just the social post pages. Facebook has marketed games, advertising and is now talking about a new personalized newspaper for clients. With all of these features available for a small price, the stock options are bound to reflect the sales. As more people join Facebook every day, the value of the company goes up. This is a simple law of supply and demand, and Facebook is definitely supplying as of now. However, there is caution to be had in an investment that looks this good.
The general feeling on Facebook’s IPO is that it is overpriced by far. Please think back to a few years ago when MySpace was the major social media network. Did anyone foresee that this social media company would slowly slip into the shadows? Yet here we are in 2013 and companies are not posting comments such as “follow us on MySpace” anymore but “follow us on Facebook.” What happens when the market changes or there becomes a better social media site? The answer is that the stocks will fall.
Another point to consider is the company value to the value of its stock. Google is valued at $200 billion while Facebook is valued at $100 billion. However, if you look at today’s stocks you will see that Google closed with $811.26 and Facebook with $25.74. That is a major price gap. Yet both of these companies are social media sites (I do grant that Google has the search engine and a lot more coverage as of now, but still the point needs to be made that the company values to the stock do not meet up).
Perhaps the biggest caution can be found when looking at the overall trend of Facebook stock over the past five years. Originally, Facebook stock sold for $35 a share. Over the past five years the stock has fallen about $10. This decline has been slow but has remained constant. The question is, will this trend continue or will the stock rise again? The high start for Facebook might have been vanity on Facebook’s part. As an investor, one needs to be aware of this decline but also note the recent climbs in the stock. True, the stock may have decreased over the last five years but if one looks at the more recent indicators of the stock, one will see that it is not doing poorly.
So, is Facebook stock a golden apple or a poison apple? Facebook stock is a ripe apple. The stock is in its prime and ready to buy and sell at this point. However, do not wait too long on investing in the stock as the margin for buying low may soon be gone. On the other side of things one needs to keep a close eye on the stock to see if it continues to fall.
I would not dump my stock options with Facebook. The company shows great promise and potential, and if the projected $35 is reached then the investor who sells now at $25 will be lacking. If you check on CNN or NAasdaq, both sites will tell you that Facebook is a recommended buy, so do not count it out. This is a stock that I would hold onto until the market for Facebook stock has proven itself a little more. New investors should look at Facebook as a great buy based on the lower cost than the original IPO. However, I would not expect an expedient turn around on your investment, so be cautious. Overall, Facebook has the potential to become a nice investment so long as the buyer is willing to hold their newly acquired shares. I do not see Facebook dwindling into the background anytime soon.
Stocks Discussed: FB, YHOO, GOOG,