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Why Investing in Facebook is a Mistake

Updated on May 15, 2012
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Facebook Logo

With Facebook holding its Initial Public Offering for stocks, people started to get really excited. Have a piece of something that couldn't possibly fail?! OF COURSE! Not so fast though, there are a lot of things to consider here so don't let your opinions of how much you like the site get in the way.

Advertising Companies Pulling Funding - Doesn't Work

Today, the 15th, we found out that GM (who has invested 10 million in Facebook) is pulling their advertisements and funding because they don't work. Wait a minute, they don't work? Of course they don't - as any user of Facebook knows. Do YOU ever click on ads? Do you ever magically want to buy anything because of Facebook? The advertising agencies will start to realize that advertising on Facebook doesn't really help them, like GM has now, and start to pull their money and the stock will drop drastically.

Facebook has a few problems in the advertising sector. Firstly, limited space. There is only so much air that can be filled before it starts to cover content users want. Secondly, patience. Facebook users have been unhappy about advertisements and other things before - and they keep complaining. If Facebook crosses the line and adds too many advertisements, Facebook might go the way of Myspace...

Social Networks Fail

Myspace. The company was sold by News Corp after it failed and they got only 35m, 535 million less than they bought it for. Yahoo!buzz. Friendster. Ping. ConnectU. There is a plethora of other social sites that failed horribly. The cycle will continue sooner or later - especially if they push advertisements on people. Someone will create something new, something that does everything Facebook does and more, and it will be advertisement free. Perhaps Skype will do it and add video and voice to a social media network? Who knows.

Public Image

For a longer overview of why Facebook has Public Relations issues, see this article.

There are numerous reasons Facebook has PR issues. They go against the communities wishes with things such as Facebook Timeline, advertisements, and more. The main problem is the CEO though. He shows open contempt for people. He offends people constantly. Business people are not happy working with him, he does things without talking about them to his board and makes wild investments worth millions to billions - not exactly a safe person to work with. Also, he thinks people are "dumb f**ks" for giving him all the information they have through Facebook. Classy person.

The Inevitable Loss

Looking at these three things alone we can see Facebook is not a sound investment. They are already loosing business and they haven't even sold stock yet. This advertising company with a social media front has its days numbered once people realize their advertisements don't work, Facebook users realize that there is something better, Facebook users get tired of advertisement spam, or Zuckerberg snaps and tells people what he really feels about them or does something else to offend a large number of people - either Facebook users of Business Investors.

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    • Prakash Dighe profile image

      Prakash Dighe 5 years ago from Dallas, Texas, USA

      I felt much the same way, and resisted the temptation to buy some stock. We'll soon know whether we made the right decision!

    • JohnGreasyGamer profile image

      John Roberts 5 years ago from South Yorkshire, England

      I didn't trust FB since I've seen a few more of these Hubs, but this one has sealed the deal. You're right about all points, and I remember the few times I used advertising. In fact, I joined HubPages through FB. I'm only using it now to promote my YT videos to friends, and using my HubPages page there. ^^

      Great Hub, voted up, interesting and definitely useful!

    • Danieljohnston profile image
      Author

      Daniel Johnston 5 years ago from Portland, Oregon

      Thank you. I started thinking about this when someone asked a question about if it was a good investment or not - then noticing the GM pullout it just felt right to list the reasons it was a bad idea.

    • profile image

      protectyourdata 5 years ago

      I've actually had good experiences advertising on Facebook, but I'm also not GM and I'm not trying to sell people cars.

      But I would certainly be hesitant to buy Facebook stock, both for the reasons you've listed, as well as my own belief that over-monetizing is what ultimately killed MySpace and Facebook is going to be forced in that direction to keep investors happy.

    • BraidedZero profile image

      James Robertson 5 years ago from Texas

      I actually wrote an article on the same topic. Facebook stocks are a horrible idea, as far as holding them goes. 20 minutes after the stocks aired they were down by $7. If you had purchased them then (at $38) you could have sold them 30 minutes later when they were at $41.50 and made $3.50 profit per share. That was the only time I considered joining the Facebook craze. Great paper, much more detailed than mine.

    • Danieljohnston profile image
      Author

      Daniel Johnston 5 years ago from Portland, Oregon

      They are down to about 33.40 or something now... The stock is tanking because a lot of people are realizing that the evaluation of Facebook is off - it was 4x the price of Google, which really doesn't make sense.

    • BraidedZero profile image

      James Robertson 5 years ago from Texas

      Yeah it was a horrible idea from the start. Not a good investment avenue.

    • Cathleena Beams profile image

      Cathleena Beams 5 years ago from Lascassas, Tennessee

      Interesting hub. Looks like you were right about those stocks. They sure didn't climb the way they were expecting them to do, even suggesting that they thought they would be worth double when they started to resell them, but current NASDAQ report shows they are worth only $28.78 per share right now. This is down $9.39 from opening date on May 21, 2012 when they were selling for $38.00 per share, a drop of 24.57%.

    • Danieljohnston profile image
      Author

      Daniel Johnston 5 years ago from Portland, Oregon

      Thank you for reminding me I needed to update the numbers on a connected post about how the stock failed. It is down a large amount from both IPO and apex amounts. I bet those who bought a large number of shares are sick right now.

    • BraidedZero profile image

      James Robertson 5 years ago from Texas

      We might want to give it the standard 60 days before completely judging the stock. In the beginning you have so many people frantically trying to buy it, while share holders are trying to make a profit off the sales, that you can't really determine if the stock is good or not. Again I am still saying it is a bad idea, but I even have to remind myself to give it time. Let it level out. Then after 2 months we can judge if it is truly a bad stock or not.

    • Danieljohnston profile image
      Author

      Daniel Johnston 5 years ago from Portland, Oregon

      Well, they certainly aren't making friends and inspiring confidence right now, they keep making unpopular decisions and announcing things that people are afraid of. They want to buy Opera browser, they also want to make their own smart phone even though they have failed 2 or 3 times now...

    • skylergreene profile image

      skylergreene 5 years ago

      I didn't buy Facebook either -- I thought it was overvalued. I think the trading reflects that. However, it's also noteworthy that the market overall hasn't been doing so hot lately, so perhaps BraidedZero is right about giving it some time before making a judgment.

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