There is a persistent rumor that Facebook will be going public in the next year; it will give you the opportunity to invest in one of your biggest-time wasters.
The initial IPO for Facebook is certainly an enticing investment and possibly one of the most successful initial offerings in history. But does it have the potential to be another Google? Will it be a wise investment?
Before you shell out your money, consider these points:
• Facebook may be familiar, but do you truly know it?
Warren Buffet had it right when he said, “invest in what you know.” He saved his fortune several times by understanding the business models of every company he invested—not falling prey to the tech bubble of the mid-Nineties.
When it comes to Facebook, you are certainly familiar with what it does. However, do you understand how it makes money? It may be free to use, but those ads in the right column of your page are where the websites real money hides. Do you ever click on those ads? Not many do, and that is the bottom line. The future of Facebook is in monetizing every page visit, and just because there are millions of eyeballs on Facebook does not translate into growing revenue streams.
• Facebook makes money off you.
Simply because you think you know Facebook, that does not make it a valuable stock to buy. You may be caught up in the hype, but for it to be reliable deal, it has to make money—a lot of money. Is this a growing industry, or will it bottom out as the next hot property arrives?
This weak economy also has quite a bit to do with Facebook’s popularity—when people start going back to work, they will be using Facebook less, in turn possibly reducing its value.
• Patience is a virtue.
Facebook may prove the old adage of investing—”only spend money on stock that you do not intend to see for ten years.” That is right; a good investment is one where there may be a long period before you see any results. If you see Facebook lasting through the next decade—and not just be the flavor of the month or year—then it may be a smart investment for you.
