The reasons are simple, just ask yourself "do I want Microsoft on my phone?". Yes, there is the answer. No. Nobody does. Microsoft became "uncool" long long ago. Nobody wants an uncool phone.
Microsoft missed the one boat that could have maybe just maybe gave them a fast start in the marketplace, they could have purchased RIM. They could of done away with the old timer brand "windows" for a smartphone, and used "Blackberry". Fact is, when people think about Windows they think about an antiquated PC, not some latest and greatest gotta have it smartphone. Add to the fact that Windows has very little, if any, brand loyalty. People don't feel connected to Windows as something that is a good brand. They think of it as the commodity PC, exactly the monopoly that Microsoft built, and profited from since inception.
The veeps at MS need someone cool to step through the door and get through their thick skulls that "Microsoft, Windows, Windows Mobile, Office" will never be "cool" brands. The brand will always be kind of like "Hormel" in the food space. Even if they did everything right and created the best smartphone OS out there, the masses don't want to be carrying a "Hormel Phone"
That's right, there is only one person that should be ultimately held accountable for the mess. The same person that ensured he had full control via voting rights, the same person that had to sign off on the revenue forecasts, the valuation, and the IPO process.
And, what this person signed off on is, in a nutshell, to pay back previous investors with new investors' expense. This is traditionally called a ponzi scheme. The number pumping, book cooking is the same as Enron, Worldcom, and a plethora of Chinese companies listed all over the world, to list a few. Yes, the bankers help, the auditors help, its a very consolidated effort. In this case, however, you have a person who demanded voting control and voted this all into play. He should be held fully accountable. Don't expect it to play out that way however, because there will be backroom deals, lobbying everywhere, and all sorts of shenanigans to keep the ball rolling
Now the simple fact remains that man, would rather take investors money than give it to them. And he has full control. Let me repeat that with quotes with a personal emphasis "HE WOULD RATHER TAKE YOUR MONEY THAN MAKE IT FOR YOU".
The question of whether or not you think Facebook is a good investment or not is whether or not you think that they are going to successfully use their cash to figure out how to make money off of their mobile users.
And to this I say, they will make nothing close to Google and Apple and probably the top 3 handset manufacturers in mobile. If this is what you think all that matters on FB valuation, then they are worth nothing. On mobile they will be squashed.
here is an interesting article http://seekingalpha.com/article/606961-morgan-stanley-s-2-4-billion-facebook-short
It appears that the trading on Monday, in particular two large block trades at the very end of the day over 1.1 million shares each, and all the trades through the day were holding the 34.01 floor.
Key events to watch out for:
1) MS liquidating its entire short position (this will actually create down pressure on the stock after liquidation is complete)
2) 3 month lockup end
3) Options availability
4) 6 month lockup end
5) Next financial reporting date.
6) A wave of new analysis after that reporting date
If management is clever, there is actually a strategy in place to drive revenue upwards quickly. Unfortunately, when one looks at the FB demographic, it is not a positive statistic. I live in South East Asia, I see how people use FB in Indonesia, Philippines, Thailand, these have been huge growth markets for FB over the last year, in particular Indonesia and Philippines. And we are talking about street vendors, housewives of very low income (by USA standards would be extreme poverty), and yes they use it to post status and talk with friends while sitting there waiting for customers or while at work being unproductive serfs. Explain to me how they are going to monetize that demographic, which from what I see is the large majority of their demographic in Asia. Microfinance? Way too many regulatory hurdles. Credit card? Way too many regulatory hurdles. Flog goods? The large demographic I am referring too does not have disposable income. FB Phone? See Microsoft and Nokia there, the space is crowded even though its booming. Advertising? This leaves primarily the consumer goods market, since this demographic pretty much only buys consumables. And this category of advertising, for non discretionary consumer spending, is not going to get better results from money spent on FB as opposed to where they are spending now, the budget in that space is allocated and FB won't be able to claw that away from existing allocations, unless they figure out a way around FCPA, because that space is full of agencies and "middlemen" in Asia, lol.
How many shares were sold to the average FB user from their personal brokerage account? Think about it, how many of those 1 billion or so users they say they have actually bought a share, a single share (38$). What about 10 shares (380$), what about 100 shares? I would guess that the dollars raised from sales individual retail investors who could be described as "avid FB users" numbers in the 7 maybe 8 digits. 9 digits I highly doubt". This says a lot about FB right here.
Were the insiders aware of the above fact? yes, and they proved it by selling huge blocks of shares
Were the bankers aware? Oh yes.
FB shares have been trading on "secondary" private market for a long time. There was 800 million USD share block posted on a private investment forum over a year ago which valued the company at 65 billion or so, I know people who mad a killing brokering FB shares for the past 5 years, a lot of those deals they were paid in shares. These were HNWI from all over the world trading in these shares, then Goldman came along with its private offering vehicle, the whole thing has been like a dutch tulip fiasco. All those investors are going to cash out, mark my words the minute the lockup expires for them, they will book their profit, they don't believe or care if FB has a way to monetize traffic, they just hopped on for the ride and are ready to get off the train and book their profits.
Will MZ be the next Bezos and announce a grand plan to use the 7 billion in cash proceeds to leverage into bricks and mortar and drive earnings? One can speculate, but I doubt there is a ripe industry around ready to have a large bite taken out of it like books and media was when Amazon was post IPO, and Bezos had an amazing ability to execute the plan. This is a longshot in my mind and the world is much more consolidated today then back then.
Will FB turn into a Google competitor? Maybe, but a longshot. Android, Google Chrome, Gmail, Google Apps, Google Enterprise, Ad Sense, Google +, Picassa, Google's physical backbone network, Google Earth, Google Maps, even if FB had every computer user on the planet, I don't think they have the vision and execution talent to compete with anything Google, they are outclassed. They do have that social network though
Will FB experience attrition? I think this has already started. People become bored with the same poo day in day out, the "like" and "thumb" are icons that won't be around for years and years, or is humanity really that stupid?
Will FB buy revenue growth? Well, judging from Instagram deal it appears revenues are not high on the acquisition list. That deal alone is an elephant in the room. Who pays 1 billion for poo like that with zero revenues, I don't care if you have 100 billion, spending 1 on that not what I would define as clever, and would even venture a description more akin to "breech of fiduciary duty".
The past months I've seen FB ads everywhere, and I mean *everywhere*, I really wonder how much their ad spend was this last quarter. They must have burned a huge wad of cash, because there were ads on every site, all the time. There is no more "viral" growth, it will be very interesting to see how much they have spent this last quarter for each new user. I bet its huge. And it will be more interesting to see if the ad spend continues, it is comical how often you see FB banners, ads, etc. right now, absolutely comical.
I think a fair value for FB today is around 15-20X earnings. Until there is a plan presented or a strategy executed that proves the FB userbase can be monetized. That day may come, it may not.
Disclosure: I do not hold any position in FB securities, nor plan to in the near future.
Stellar rays prove fibbing never pays. Embezzlement is another matter.