Can Facebook catch Apple?

Facebook’s IPO was the third largest in US history only a few months ago – not bad for a company run by a kid wearing a hoodie. As well as raising $16 billion, Facebook’s share sale also brought analysts and investors to take a close look at its books for the first time.

It didn’t take long for the shine to come off the web giant. Shares have fallen dramatically from the IPO price of $38, dipping below $20 last month, and with many analysts predicting further falls. The IPO itself was surrounded by controversy, and enquiries into the process are continuing.

It would be an understatement to call it a shaky start, but can Facebook climb back or is it just finding its natural level?

It would be an understatement to call it a shaky start, but can Facebook climb back or is it just finding its natural level? The firm makes most of its money via advertising, with the promise of improved targeting using the immense amounts of data users upload about themselves. However, large firms such as car manufacturer GM aren’t convinced, saying the ads it ran weren’t effective.

Indeed, Facebook users will struggle to identify many of the companies advertising on the site – and how much money can the site really earn from dodgy diet firms and dating sites? Plus, Facebook has struggled to make money in mobile advertising, which is a problem as people increasingly move to smartphones and tablets to access the social network – although its most recent results showed improvements in that area.

Facebook also faces a struggle to continue increasing its user numbers. It looks set to become the first social network to claim one billion users – an amazing feat – but also posted a loss of six million users in the US in one month alone.

The company revealed in August that as many as 83 million accounts – a significant 8.7% of the total – aren’t even real people, but duplicates, pets, or fake or spam accounts.

Worse, the problem is particularly acute in some of the developing countries fuelling Facebook’s rapid growth. Facebook is in the awkward teen years, and it needs to mature quickly. Google famously hired Eric Schmidt to help guide Larry Page and Sergey Brin into the world of big business; perhaps Mark Zuckerberg needs his own “grown-up” to guide him through this rough patch.

While the company is struggling to make money from its 955 million users, that base gives it a huge competitive advantage. Twitter might have all the attention, and Google+ might have a huge global power behind it, but Facebook has all the users. Now it just needs to figure out if they’re worth anything, or if social networking is another technology bust.

Verdict: SELL


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