Some years ago, there was a comedy show that had as a part of its weekly routine, the “Flying fickle Finger of Fate” award, which went to people in the news who accomplished “dubious achievements.” From The Wall Street Journal, Friday July 27, 2018: “Facebook shares fell 19% to $176.26, erasing about $119.1 billion in market value, after the Menlo Park Calif., company warned late Wednesday about slowing growth. Facebook’s loss in market value Thursday is larger than 457 of the 500 companies in the S&P 500. Facebook Chief Executive Mark Zuckerberg alone lost almost $16 billion in the value of his stock holdings.” But Mark Zuckerberg is a genius. Perhaps Zuckerberg will have to skip the Wadyu steak Friday night, and just have the regular filet mignon.
More from the article: “But Facebook’s main app, internally called “Big Blue” is starting to show signs of age. Facebook’s user base in the U.S. and Canada is stagnating, while in Europe it fell slightly in the second quarter partly due to stricter privacy laws enacted in May.” Pestered by those pesky privacy laws, which were most likely enacted after Facebook allowed access to 87 million files by Cambridge Analytica. Let me be clear, I have no objection to anyone using or investing in Facebook, in fact I was looking to add it to my portfolio, but after its drop of another $1.37 Friday (the close was -$1.37, during the day it was around -$2.00) I’m still just looking at it.
Those who have not been on the internet very long are not aware that social media has been around a long time, longer than the fourteen years that Facebook has been around, and certainly no one wants to listen to my explanation of its evolution. Suffice to say, the early social media firms didn’t understand how to squeeze money out of what they thought was just a nice internet service. The internet is littered with broken dreams and would-be genius millionaires who just barely missed hitting it big. The would-be genius Winklevoss twins, who were able to milk the genius Zuckerberg out of an undisclosed sum, are trying to make it big with Bitcoin now. While I admire the Winklevoss twin’s persistence, they remind me of a twenty-first century snake-oil salesman, whose traveling wagon has been replaced by keyboards, servers and screens.
History is for old people, and Mark Zuckerberg is a genius, not just someone like Theranos’s Sunny Balwani, in the right place at the right time. Netflix, Microsoft and Amazon are all in double digits, thank you very much, and as investments, I missed the boat on Google, which I could tell was going to hit it big, but the high IPO cost was scary. The search engines that Google sank are sitting on the bottom of the internet, rusting away, with their frustrated entrepreneurs who had to go to other startups or a corporate giant like Sun Microsystems, where they only make a few hundred thousand a year. Surely a fate worse than death, just ask any blue-collar worker whose hourly wages have been stagnated for decades.
Using the terms of management, Facebook may have reached “market saturation” where everyone who wants it has it. In the business cycle, after the “peak” comes the “contraction” along with opposing competitors who pilfer your clients and challenge your firm to find something to give your firm a more “competitive advantage.” You can do what Microsoft did, and start charging monthly fees, even for those who thought that when they shelled out a few hundred for Microsoft Office, and loaded it on to their system they could use it as long as they had it on their computer. But the high fees for buying the Windows software package just wasn’t enough for Microsoft. Nothing like changing the rules in the middle of the game, especially admirable to a firm like Microsoft whose genius founder Bill Gates is barely scraping by with a net worth of only $92.3 billion. (Just a bit more history.) By the way, in case you didn’t know it, the European Windows platform is different from the American version, because the European Union hauled Microsoft into court when it refused to allow European software makers to use the Windows platform for software. The EU claimed Microsoft was a monopoly. After spending millions in the courtroom, Microsoft lost and was fined $794 million in 2004.
Surely, Facebook will overcome this setback. Let’s hope genius Zuckerberg can maybe get a second job and make back some of those losses. A billion here, a billion there, eventually, you’ll be talking real money. There is the looming possibility that Facebook has saturated the market, and more specialized services will pilfer its customers, and that it may have peaked, and is on a downward trend. As stated, the internet is littered with failures, so they won’t be all alone. Financially, this may be an opportunity for Facebook to acquire a lot of shares and bring the price back up. Or, perhaps the genius Zuckerberg will finally be forced out, to try to survive in this cold world without a steady income. Please include genius Zuckerberg in your prayers, while reading the second quarter financials.