Go Short On Facebook

So I was contemplating what my first post was going to be here while uploading my latest profile picture and tagging away at every single person I might vaguely know on Facebook (just kidding by the way I rarely use Facebook...honest), that is when a thought came to me. I remembered all the buzz surrounding the site and all the wild valuations (in my opinion) of how much the site is worth. This has got me thinking about the future of Facebook and whether the current valuation of the company is correct.

For me I think most current valuations of the company are far too high even with the site's current popularity. In those terms(popularity) I also think the site has peaked and unless it comes up with some new innovating features the future doesn't look good. Does anyone here remember hi5? or MySpace? It is extremely risky when a business is highly dependant on being "In" because we all know how quickly that can change.

Right now the main and possibly the only asset of the company is it's website, and I see many factors that could pose a problem for it's future. The first is that a lot of other established players like Google are now trying to eat into the social networking market share. This is evident with the current introduction of Google's own "like" button. To be honest though I think that while these other companies might take away some of Facebook's market share it will be a new star-up site or application with yet unforeseen features that will turn out to be Facebook's fiercest competitor. Right now I already see 4square as having great potential, both with users and potential advertisers, but it is not quite there yet with some tweaks though it can really take off.

Another possible problem that can take users away from Facebook is the emergence of the smartphones, which enable users to communicate in a much sleeker way that Facebook in it's current state can seem cumbersome. We can see some of that already with applications like Wassup and BlackBerry's group. If an application comes along that can do what facebook does in a sleeker way with more features then there is no reason why users might be switching en mass.

One bad thing about products like Facebook is that brand loyalty is very low, if there is any brand loyalty at all. The main reason people use it is because everybody else is using it, hmm...kind of reminds me of high school and we all know how fickle that can be. Another thing is that there is a new generation coming all the time. With a product like orange juice for example, if your parents like a certain brand there is a very high chance that you will also be accustomed to it's taste as well. But with a product like Facebook that depends quite strongly on the "Cool" factor and the feeling of being "In", it remains to be seen how these new generations will take to using a product that was invented and used extensive by their parent's generation. 

So what's the point you can't actually buy any Facebook stocks right now? That is true, and that's a pity because I would love to go short on it in maybe two years, which is how long I expect it's value to start to decline(if not sooner). It is very possible however, that Facebook will enter the open market within two years. If it enters the stock market within this time I expect it's value to sour with initial offerings. If you happen to have some funds to spare taking a short position in Facebook stocks then could be a very lucrative proposition.

Oh by the way...you heard it here first.

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