Facebook: The Bombing Stock 2

Facebook's stock started out relatively strong. With an initial offering of thirty-eight dollars per share, it was strong enough to attract many initial investors. Unfortunately, the stock took an almost immediate plunge to thirty-two dollars per share. Many investing houses saw this coming, of course, and most of the major investment banks simply avoided the stock like it was tainted. In many ways, of course, it was. Services that allow you to do things like buy Facebook likes and promote Facebook help stimulate the Facebook economy, but this money never actually passes through Facebook's hands. If investors were savvy, they should have known that things were going to wrong almost as soon as they started.

Facebook's stock was not just overvalued – it was almost criminally overvalued. A realistic valuation of the company's current earnings put it somewhere in the penny stock range, not at a point where a huge drop would still see it above thirty dollars per share. Facebook's valuation seems to have been more on reputation or prestige than anything else. After all, who would want to invest in a social media giant that had an initial offering comparable to some of the lowest-valued stocks on the market? But realistically, that is where the stock belongs. The site is incredibly popular and useful, of course, but proper monetization is not necessarily its strong suite.

Facebook is a service, and a free one at that. Expecting it to perform like a business is insane, but many investors were suckered into buying the prestige. Facebook makes money, to be sure, but it does not make money hand over fist. There are businesses that make money off of the service, of course, but even they are barely out of the penny range. One needs to only take a quick look at Zynga, the company that makes nearly everything that ends with -ville, to see a more realistic valuation of Facebook's major users. That company is only valued at around six dollars a share, and it seems to have more of a realistic profit base than Facebook. Yet it does not offer investors the same kind of prestige, and it simply does not fall into the same level of over-value.

Facebook's value will likely continue to fall, especially as investors begin to realize what they have bought. Its initial valuation was far too high, and there is no doubt that it will continue to fall. The stock does work as a great example of how investing in a prestige stock does not always turn out, and puts the past several years of investing in sharp relief. It seems that many investors learned little from the tech bubble's burst, and Facebook does seem to be very much in line with those older stocks. The company produces no product, nor does it have a service for which any customer has seen very fit to pay. At the end of the day, this may be what leads to the downfall of not only that stock, but of any similar offering that hits the market.

Facebook stock is falling, and there seems to be little reason to believe that it will rise again. One should never invest in a stock merely because it seems to be on the rise, nor should one invest because it has a popular name. If you wish to invest, it is always better to take a moment, do some research, and use logical deduction.

Drew Hendricks

Drew Hendricks is a tech, social media and environmental addict. He's written for many major publishers such as National Geographic and Technorati.

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Drew Hendricks

Drew Hendricks is a tech, social media and environmental addict. He's written for many major publishers such as National Geographic and Technorati.

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