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Friday, July 20, 2012

Fwd Wall Street Daily on Facebook - It is not the next Google

WSD, Louis Basense says that Facebook can not be the next Google.  So spare the comparison.  There are however interesting comparison at Social Media Revolver.

Facebook is fun to use.  Its being fun to use can not be matched by Google plus.

Please take note that other sharing platform are fun to use.

But Google plus allows your feed to grow fast vs. Facebook.

---------- Forwarded message ----------
From: Wall Street Daily <wallstreetdaily@wallstreetdaily.com>
Date: Thu, Jul 19, 2012 at 6:22 PM
Subject: Spare Me the Weak Facebook Comparisons




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Spare Me the Weak Facebook Comparisons
By Louis Basenese, Chief Investment Strategist

Louis Basenese Long (long) before it was popular, I told investors to avoid Facebook's (Nasdaq: FB) IPO like the plague. Literally. (See here, here and here.)

I don't need to tell you that I made the right call. By now, everyone's aware of Facebook's flop as a publicly traded company.

However, with Facebook set to report earnings for the first time next Thursday - and its stock off 37.6% from its opening day high - I feel the need to reiterate my stance.

Why? Well, apparently, some investors are still convinced Facebook promises to be the next hot internet stock, like Google (Nasdaq: GOOG) or Amazon (Nasdaq: AMZN). While I'm all for a spirited debate, there's no debate here.

Facebook is nothing like Google!

The services the two companies provide are completely different. The only commonality they share is that they generate revenue from selling advertising. Or, should I say, Facebook is trying to generate revenue from advertising.

There's a key difference, though. Google serves up ads to its users after they've searched for a very specific term. They're on the hunt for something, and therefore much more likely to click on ads related to that topic.

In comparison, users on Facebook aren't submitting specific search terms. They're not hunting for anything, except maybe a long lost acquaintance. As a result, there's no natural upsell and Facebook just forces ads on users that might be relevant.

When it comes to pinning down users' interests, though, guessing and knowing are totally different. And the difference shows up in the advertising results. Google is effective. To date, Facebook is not.

What if we compare Facebook to Google in terms of early stock price performance? That doesn't work, either.

You'll recall, Google debuted at $85 per share in August 2004 and never looked back. Meanwhile, Facebook priced its IPO at $38 and briefly traded up to $45 per share. But it's been falling ever since.

Consider this myth busted! Facebook is not the next Google.

So what about Amazon?

Well, here, too, we lack any direct connections between the underlying businesses.

Amazon is an online retailer for everything. It sells actual goods. Facebook is a social networking site that tries to provide a service to users, just so it can make money by advertising to them.

The connection Facebook lovers try to make with Amazon is the fact that Amazon's stock struggled out of the gate, too. But then it rebounded mightily. In the first five days of trading in May 1997, Amazon's stock fell 46.2%. It then rallied 233% over the next six months.

As Bespoke Investment Group, says, "So the thinking goes that if Amazon could pull off a big reversal, maybe Facebook could, too."

That's a big maybe!

If Facebook were to rally like Amazon, its market cap would balloon to almost $230 billion. That would make it one of the five largest companies in the United States.

Sorry folks. Even the village idiot understands that it makes no sense for a company with $4 billion in annual sales to be one of the largest companies in America. The math just doesn't add up.

Bottom line: Please spare me the weak Facebook comparisons. Facebook is not the next Google or Amazon. Based on the fundamentals, the next stop for share prices is lower, not dramatically higher. So keep avoiding the stock like the plague.

Ahead of the tape,


Louis Basenese

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