Facebook stock is basically the LA Jaguars, the Jaguars franchise that has theoretically moved to LA and is scheduled to play in the Coliseum. Why in the world would anyone want to buy into the LA Jaguars (aka Facebook)? Because they have the potential support (revenue) of the biggest available market in the United States. This is the exact reason that Facebook was over valued, the hype of the company and the potential value directed from the volume of users. If Facebook can figure out how to get the "local market" to spend money in the application, it could become a huge cash cow, but that seems awhile away.
Pros:
Maurice Jones-Drew - Steady and loyal user base
While he may not win you a super bowl by himself, you know that if the rest of your team is working to perfection, this guy is going to help win a lot of games. The only problem is, the greatest running back in the world cannot win games alone (Barry Sanders) without a complete team around him, much like having a boat load of users will not make you money without getting them to buy things or click on ads.
City of LA - Large Market audience
The Jaguars are in LA (theoretically), which is great news if the team can play well and be managed correctly. Think Lakers, Dodgers, Angels. If the team starts to perform, you know it will be backed by a HUGE audience, who will create revenue, encourage sponsors and bring football back to LA. While that is great, there are also the Rams, Raiders and Clippers, who never really made it in the city. Without a great product on the field, LA can easily forget about you and move on. Facebook needs its users to click on more ads (which is currently a small percentile compared to Search Engine ads, that have made Google very wealthy) and spend more money on apps / products.
Cons:
Blayne Gabbert - Advertising Model
Facebook advertising has all the potential in the world to be amazing, just like Blayne Gabbert. However it definitely isn't one of the best yet, like Blayne Gabbert. Gabbert had such a poor year last year, that people in the league are starting to wonder that even time to grow, will he ever be a top notch quarterback? A 50% completion percentage at 5 yards a clip is not going to cut it, not even with Maurice Jones-Drew busting up the defense on 1st down. Facebook users claim to have clicked on at least one facebook ad about as much as Gabbert has hit his target down the field. If Gabbert doesn't step up and have a solid year, management might lose confidence and he might not ever become the QB everyone thought he could be.
Mike Sims-Walker - The IPO
Want to talk about over-valued? This guy was supposed to be the next elite receiver ever since he took the field, much like Facebook had the biggest IPO buzz. In his 1st year starting he went for 869 yards and 7 TD, no small feat for a guy playing on a run first team. In fantasy circles, everyone was talking about how this guy was going to be the next TO at 6'2 and built like a rock. He shot up draft boards and was considered in the same territory as Wes Welker and Hines Ward. When you get valued at twice what Google is worth, the expectations are immense and you just might lose some valuation. Not saying Facebook is going to get released by Wall Street like MS-W, but the initial offering proved to be WAY too much.
And for fun...
Justin Blackmon DUI - The GM Exodus
Bad omen to say the least. One of your biggest names that you have obtained, turns around and makes you look like an idiot.
Conclusion: Much like the theoretical LA Jaguars, with Facebook we are going to have to wait and see what they can do before we buy in. Most analysts appear to think Facebook should be valued in the 20-25 range, but due to all the bad publicity it could drop well below that range. Facebook needs to prove that it can not just sustain advertising revenue growth, but make that revenue grow substantially. As an advertiser, Facebook offers a number of nice features, especially regarding targeting and the variety advertising formats available. That being said, Facebook also lacks the quality of ROI features that a Google adwords campaign has. With Google, you can select search terms that show intent to purchase or research, which Facebook advertising currently lacks. I have a gut feeling that the best days for Facebook advertising are ahead of the company, but with the mobile application gaining usage, its vital that Facebook figures out a way to make the mobile platform as profitable.
My recommendation (which is not a professional analyst or broker, so don't actually follow through without doing your own research) is to wait until Facebook figures out how to make money from the mobile apps and then decide whether or not you want to add it your portfolio. If it breaks near the 20 dollar level, I think you will see a lot of those FB haters change their tone and start calling it undervalued for a "high-growth" pick and the stock will begin to climb. While everyone is laughing at FB now, I think it will start to perform once the stink of the IPO has worn off.
Yes, I just compared Facebook to Jaguars...who were moved to LA.
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