Some of you might be huge social media fans and with that believe Facebook and Twitter are awesome companies to invest in. While I agree with the awesomeness in social media, I don’t agree that the hype around the two stocks is justified. And here is why:
Facebook and Twitter have advertising depending business models. In other words, they make their money from big businesses, or small, to advertise on their platform. Nothing against advertising, that’s good stuff and needed in the business world. However, that alone doesn’t justify the numbers thrown around for Facebook and Twitter. Advertising, and the best ways to do it, has still to be figured out after social media became such a powerful publishing tool. One thing, however, is questionable: Does advertising on Facebook and Twitter work? Can it work?
I tried to test it and asked around, real people, face-to-face: Have you ever clicked on advertising on Facebook or Twitter? 1 in 10 admitted to have clicked on an ad or sponsored post, but nobody followed through to buy. While my little personal survey is for sure not groundbreaking findings or news, or a trusted source for anyone, I have the feeling that real honest numbers are even way below the 10% click rate I have discovered. And to be straight forward, I would be stunned to learn the rates are 10% or better. Let’s not even talk about buying. By the way, I have never clicked on an ad on Facebook or Twitter. I can’t even remember the name of the last advertiser I saw. Can you?
For my taste, this means that advertising revenue as it is projected (not delivered) into the stock price of Facebook and Twitter will never occur. No chance! Once that becomes clear, the stocks will get hit very bad.
For Facebook there is another important fact to consider: Google+! For the moment, Facebook might still be the most powerful and most used social media platform, but I believe this is going to change. There are already signs of some groups breaking away, for all kind of reasons. Working in the “social media industry” I know that there is talk that Google+ is the more powerful platform. Not only does that talk become louder and louder, those that do social media for a living know that Google+, and even others such as Pinterest, are gaining ground. Once some of the impressive Facebook numbers of the past start breaking away, the stock will be standing in the rain, heavy rain.
As far as Twitter goes, there are small businesses that have more revenue than Twitter and the entire hype around them can only be traced back to Wall Street. There is plenty of activity going on that really doesn’t do any good for anyone North of Houston and across the East River or Hudson. Institutional investors, including hedge funds, are playing the stock and while doing so lure the small investors into the game. Be warned, don’t get played on this one! As I write this, the stock has lost over 7%. Reality is calling.
My recommendation for the small investor, stay away. Let the big guns pick each others pockets.
Disclaimer: I am not a licensed professional and I only express my personal opinion about these stocks. Please click the disclaimer link for more about this.