Facebook reported Q4 earnings and the numbers were great! Consequently, the stock price surged. Everyone invested in the company is smiling and some of those that are not, are not so happy. Don’t be sad, if you are not invested, not everything that shines is Gold! Here is why:
The first thing you need to understand before you celebrate the results is, these are numbers created by selling advertising in the different forms the company offers it. That still doesn’t confirm that the product actually works and these numbers will be the same at the end of the next quarter. They might, nor they might not.
Keep in mind, it was Holiday season and everyone spent the biggest chunk of their annual advertising budget. Also, if you need an indication on how Facebook advertising might work, have a look at the Q4 results of those that actually do the advertising. There are quite some “long faces” to look at. I am not blaming Facebook for the weak Christmas season of the retailers, there are quite some other factors to consider, but I keep having my thoughts on Facebook’s business model and the value of advertising on the platform. I am also sure, that advertisers will have their second thoughts on the success rate of their advertising on Facebook and at one point spend money otherwise.
While I am saying this, I also want to remind you that it doesn’t matter how many users Facebook has, all that matters is how many of these users actually click on advertising and follow through with sales. Based on your behavior when you are on Facebook doing your thing, you can get an idea of how good the product is.
Also important to consider, if you base your decisions about buying the stock on “trusted sources” like Wall Street Analysts, keep in mind that they only crunch numbers from the past, there is barely a common sense statement regarding the future. Also, they might follow own interests, or not. You decide.
Hand in hand with reporting the numbers, Facebook’s Mark Zuckerberg stated “Facebook’s future might not entirely rest on Facebook itself”. I am not saying this is an acknowledgement of weakness, but I would strongly agree with him. Facebook has acquired and keeps acquiring other businesses and some of them could to have a bright future, which, in my opinion, Facebook itself doesn’t have.
So, if you are bullish on Facebook, consider these things. You might be happy you have.
Disclaimer: The statements made are my own opinion based on what is reported in the various news sources and my understanding of the markets and the industries. If you look for financial advice, check back with your bank or other sources. Read the disclaimer as well.