Why I DON’T Like Facebook for Investment
By Chuck Bentley–ATLANTA, May 18, 2012 /PRNewswire-USNewswire/
Consider Groupon, Netflix, MySpace and Beware, says CEO.
Crown Financial Ministries CEO Chuck Bentley outlined reasons that should concern investors who plan on “liking” Facebook for their portfolios. He discussed his hesitance in a national e-blast to supporters of the 35-year non-profit that helps people and businesses who are struggling after making bad financial decisions and working to build a strong foundation to “do well.”
“The buzz on Wall Street this week surrounds the long-anticipated initial public offering (IPO) of the wildly popular social media giant, Facebook. It’s being hyped as one of the biggest initial public offerings in history for an Internet company, and investors are lining up to own a share. I’m not one of them,” Bentley told supporters.
“There are plenty of reasons not to ‘like’ Facebook’s initial public offering—despite the hype that it’s the hottest investment opportunity going. One is the past performance of two other technology darlings—Groupon and Netflix. When Groupon ‘went public’ last November, its stock opened at $28 a share. I just checked the ticker—it’s now trading at around $14 a share.
“Last summer, Netflix was trading at nearly $300 a share, but for a variety of reasons, including a substantial price hike for its service, revenues have dropped and so has the price of Netflix stock—now trading at around $78.50 a share … If Groupon and Netflix weren’t reason enough to avoid the Facebook IPO, don’t forget the epic fall of MySpace, once a contender as the leading social hub on the web. Rupert Murdoch’s News Corp. purchased it for a whopping $580 million in 2004 and was happy to find a buyer for it last year at $35 million.
“A closer look at the numbers reveals that Facebook will likely follow a similar pattern of over-subscription based upon opening day hype, only to be followed by a struggle to maintain original market valuation … Facebook intends to offer 337.4 million shares at a price of $28 to $35 on NASDAQ under the symbol, FB.”
Although advertising revenues are estimated to reach $6.1 billion in 2012, the valuation would price Facebook stock at 24 times revenue, compared to 5 times revenue for Google.
“Further, the company is still led by Mark Zuckerberg, who turned 28 this week. He’s the unquestioned genius who founded Facebook in 2004 from his Harvard dorm room and promptly dropped out of school to build the business. If the reports of Mr. Zuckerberg that I’ve read are at all accurate, I would be leery about placing confidence in his leadership,” wrote Bentley. “There are always more geeky college freshmen with highly marketable ideas. New and disruptive technology can surface overnight, and there is little to keep users loyal to one over the other.”