The Wall Street Journal tells of Mark Zuckerberg's ambition to make Facebook a blue chip. A blue chip, in stock market lingo, is the perception of certain stocks as having a long lasting high intrinsic value. The stocks that are usually mentioned as blue chips are giants such as WalMart, Macdonalds, Exxon Mobile. Like all stock investment terms, and to a greater extent, like all economic terms, one cannot ignore the psychological aspect. Blue chips were at the past only "old technology". The internet Boom and Bust of the late 1990s was a great proof why new technology should be considered and valued carefully. And yet, technology giants like Microsoft, Intel, Apple, Google and Oracle are considered by many as blue chips, despite their relatively short existence, and serious doubts regarding their chances to be thriving multinational corporations in 50 years time. IBM, on the other hand, has proved its ability to survive and change through the years as a truly thriving giant, and Investors legend Warren Buffet himself has recognized this 'bluish chipness' characteristic of IBM when he made his first ever purchase into a technology based company.
The real problem with the idea of Facebook as a blue chip is the nearing IPO time. It is clear that investors are being tempted to think of Facebook as different from Myspace, Zynga or Linkedin, so that investors shall not fear a change of fate for Facebook's success as the world's leading social network, or a plummeting stock price shortly after the IPO, due to investors realizing that the towers have been prematurely built on air, as the underlying financial data do not justify the stock price. The solution is simple - to sell investors the idea that Facebook is here to stay.
I have serious doubts about Facebook's long term prospects, as can easily be deduced from past posts
(such as the ones regarding - the company's relationship with some of its content producers (Zynga); the hardships of controlling both infrastructure and content for a long time; the difficulties of maintaining the world's largest social network with the increasing floods of information). I have no doubt in my mind that Facebook's future will be quite similar to Apple's roller coaster ride of the last 25 years. During this ride there will be ample opportunities for careful investors to purchase Facebook at a cheap price, assuming the fully disclosed financial data will justify such a move. Until then (and always, actually), any investor should remember to follow the ancient rule: Caveat emptor.
The real problem with the idea of Facebook as a blue chip is the nearing IPO time. It is clear that investors are being tempted to think of Facebook as different from Myspace, Zynga or Linkedin, so that investors shall not fear a change of fate for Facebook's success as the world's leading social network, or a plummeting stock price shortly after the IPO, due to investors realizing that the towers have been prematurely built on air, as the underlying financial data do not justify the stock price. The solution is simple - to sell investors the idea that Facebook is here to stay.
I have serious doubts about Facebook's long term prospects, as can easily be deduced from past posts
(such as the ones regarding - the company's relationship with some of its content producers (Zynga); the hardships of controlling both infrastructure and content for a long time; the difficulties of maintaining the world's largest social network with the increasing floods of information). I have no doubt in my mind that Facebook's future will be quite similar to Apple's roller coaster ride of the last 25 years. During this ride there will be ample opportunities for careful investors to purchase Facebook at a cheap price, assuming the fully disclosed financial data will justify such a move. Until then (and always, actually), any investor should remember to follow the ancient rule: Caveat emptor.
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