Tuesday, April 24, 2012

Facebook Nation

Last month Facebook counted more than 900 million active users. This information was supplied by Facebook in a regulatory filing.

Facebook admitted that about 5 percent of those accounts were likely fake accounts, but even so, they now have more users than most countries have citizens. That means if Facebook were a nation, they would likely be a superpower.

Can anyone say "world domination?"

Despite earning a cool $205 million on $1.1 billion in sales, there are so things to consider when it comes to Facebook's astounding growth: it can't last.

Look, there are only 6.8 billion people on the planet at the moment. Facebook already has one billion of them, or a little less than 15 percent of the total human species head count. The numbers show that Facebook is already begin to slow down when it comes to growth.

Last year Facebook had a record growth rate of 58 percent, which was absolutely unheard of. This year that rate has slowed nearly 50 percent, to just over 30 percent. A 30 percent growth rate is certainly nothing to sneeze at, but it is a sure sign of things to come as Facebook gradually eats itself to death.

If Facebook growth slows to zero does this foretell the end of the company? Of course not. But it does change the way everyone will be looking at them. How will they handle their business when their business is no longer based on growth? What will they have as a business model once (or if) they capture every available set of eyeballs?

There is certainly nothing wrong with a business model built around a core audience of one billion people. I'm pretty sure that's what keeps the Vatican open. But how Facebook leverages this base; what they can do with all these users-how they can KEEP them-will be paramount to their success.

With the Facebook IPO expected in just a couple short weeks, all eyes are on the social media behemoth, and all minds are wondering what all this activity is worth. One billion dollars? Ten billion dollars? One hundred billion dollars?

Investors also have to gauge the value of that stock as an investment. Not just, what is it worth today, but also, what is it likely to be worth tomorrow? Next week? Next year?

My guess is Facebook the company will be here for a long, long time. Their social media network, however, I think, is far too subject to the whims of its users. One stiff breeze of "something new" and they'll be off to the races. As long as Facebook knows how to turn a profit, they can stay in business and succeed in spite of diminishing users.

And that's what investors need to know.

No comments: