Does Social Media Hold Value for Retail Investors?

More than a week after its opening, Facebook's initial public offering is roundly considered by Wall Street to be a bust.

It's now clear that the opening $38 price of the stock was inflated, trading glitches caused panic when the stock opened for trading, and the general negativity about the company's long-term ability to produce revenue caused Facebook's shares to fall 16 percent from its opening.

[See top-rated funds by category ranked by U.S. News Mutual Fund Score.]

Both large and small investors who were caught up in the hype of the IPO have lost big. But the Facebook bust hit retail investors especially hard: According to reports, large Wall Street institutional houses had information that the stock was overvalued and were able to make bets accordingly. Retail investors only had information that inflated the stock price.

In the wake of Facebook's disappointing week, many investors are questioning whether other social media companies that are considering going public might be overvalued as well. The rough week for the social media giant could make it difficult for similar companies to pull off profitable IPOs.

Finding investment value in social media. At its most basic, Facebook provides a platform for people to share information with one another. People post photos and videos, share details about their lives, and connect with old friends. Many share links to articles they find interesting. But sharing information does not produce revenue.

[See 4 Ways the IPO Will Change Facebook Forever.]

Perhaps the most-used metric on Wall Street is the price-to-earnings ratio (P/E ratio), which traders use to determine if a stock is properly priced.

It's generally accepted that a healthy company has a P/E ratio of 15 to 25. Overvalued companies typically have a P/E ratio over 40. When Facebook opened, its P/E ratio was more than 100. Now, it's around 85--still ridiculously overvalued by Wall Street standards.

The stock was overpriced for a number of reasons. Many people wanted to own Facebook simply because they are users of the site. But at its core, Facebook's IPO failed because acting as a facilitator of information does not create revenue. One billion people have Facebook accounts, but without a revenue-creating mechanism like charging for access, the number of users is inconsequential.

Too early to pass judgment, but IPO echoes the dot-com bust. Dov Hirsch, senior director of corporate communications for Alana Health Care and a frequent commentator on social media, says one week is not enough time to determine Facebook's long-term value.

"When do you want to cash out? In a year? A month? At the end of the week?" Hirsch asked. "The reality in terms of the value of Facebook is going to be so long-term. Look at General Electric, one of the largest companies in the world. It didn't happen in a week."

[See Some Lessons From the Facebook IPO.]

Hirsh adds that other companies rely on Facebook to spread the word about new products, attract new customers, and build a brand. These uses aren't reflected in Facebook's P/E ratio, but it shows that Facebook has value in the broader economy.

"When you look at Facebook, it's not an independent company. It's carved a huge niche for itself that other people are relying on for their business," he says. "It's created opportunities for others to wrap their business model around and grow in tandem."

According to Nick Westergaard, founder of Brand Driven Social, a marketing firm that helps companies maximize their online brand, the hype around Facebook's IPO and its subsequent bust could make it more difficult for other social media companies like Spotify and Noveo (maker of Angry Birds) to go public. "Is this going to close the IPO window for other social tech companies? I would say it's a push," Westergaard says. "I don't know if it's helped or hindered."

"In a lot of ways, it would be hard to meet such expectations," he says. "I'm not sure it was socially realistic to think the Facebook IPO would have an impact on the broader economy."



More From US News & World Report

--

Get stories like this on the Yahoo app and discover more every day.
Download it now.
Loading...
  • Anchorvale Lane EC site draws 16 bids
    Anchorvale Lane EC site draws 16 bids The Edge Property - 4 minutes 42 seconds ago

    The tender for Anchorvale Lane executive condo site in Sengkang has been closed after attracting 16 bids, according to HDB.“The tender results reflect a close race amongst the market’s seasoned players,” says Desmond Sim, Head, CBRE Research, … More »

  • Oil prices fall on U.S. crude stocks build; fears over China demand Reuters - 10 minutes ago

    Oil prices fell early on Wednesday as an unexpected build in U.S. crude stocks weighed on markets, along with concerns that Chinese crude demand could falter as Beijing clamps down on alleged tax evasion in the oil industry. International Brent … More »

  • Mind the air-gap: Singapore's web cut-off balances security, inconvenience Reuters - 29 minutes ago

    Singapore is working on how to implement a policy to cut off web access for public servants as a defence against potential cyber attack - a move closely watched by critics who say it marks a retreat for a technologically advanced city-state that has … More »

  • Cat Cafes In Singapore - Which Ones Are Value For Money?
    Cat Cafes In Singapore - Which Ones Are Value For Money? GET.com - 31 minutes ago

    For all you kitty lovers who don't have cats of your own, cat cafes are important establishments... … More »

  • 4 Signs It's Time To Change Your Life
    4 Signs It's Time To Change Your Life GET.com - 31 minutes ago

    Are you a stressed out Singaporean who's often too fatigued to care about how you're actually... … More »

  • Dollar edges up, as investors wait on Fed, Jackson Hole
    Dollar edges up, as investors wait on Fed, Jackson Hole Reuters - 45 minutes ago

    The dollar edged up on Wednesday, moving off lows touched against the yen overnight, as markets looked to a gathering of global central bankers in Jackson Hole, Wyoming for clues on whether the Federal Reserve is poised to hike interest rates again. … More »

  • Asian stocks consolidate after Wall Street gains, oil slips Reuters - 51 minutes ago

    By Saikat Chatterjee HONG KONG (Reuters) - Asian stocks consolidated a recent run of gains on Wednesday, helped by Wall Street's rise overnight, even as oil prices slid on trade data showing a surprise ... … More »

  • Oil Declines on Glut Concern as Asian Shares Rise; Rand Rebounds Bloomberg - 58 minutes ago

    Crude dropped as much as 1.3 percent in New York after American Petroleum Institute figures showed that U.S. inventories increased by 4.46 million barrels last week. Shares rose in Japan and Australia, while stock index futures foreshadowed gains … More »

  • China’s Postal Bank Said to Seek Approval for $8 Billion IPO (1) Bloomberg - 1 hour 7 minutes ago

    The Beijing-based bank plans to seek approval from the Hong Kong bourse on Aug. 25, according to the people, who asked not to be identified as the information is private. Postal Savings Bank, ubiquitous in small-town China, joins Bank of Tianjin … More »

  • Qantas Pays First Dividend Since 2009 After Record Profit (2) Bloomberg - 1 hour 19 minutes ago

    The nation’s biggest carrier will pay a final dividend of 7 Australian cents a share and buy back as much as A$366 million ($279 million) of stock, according to a filing Wednesday. Joyce, who has cut thousands of jobs, deferred aircraft orders and … More »

  • Tokyo stocks extend global rally in opening trade AFP - 1 hour 20 minutes ago

    Tokyo stocks opened higher on Wednesday, extending a rally on global markets. The benchmark Nikkei 225 index climbed 0.32 percent, or 52.85 points, to 16,550.21 in opening deals, while the broader Topix ... … More »

  • MLQU is home in QC
    MLQU is home in QC Philippine Star - 1 hour 32 minutes ago

    Following exponential growth in its law enrollment rate in school year 2015-2016, Manuel L. Quezon University made another significant move to Quezon City last Aug. 19, coinciding with the 138th birth anniversary of the city’s visionary and former … More »

  • 4 Major Misconceptions Singaporeans Have About Their Critical Illness Insurance Plan DollarsAndSense.sg - 1 hour 33 minutes ago

    Find out if you have the same misconceptions about your critical illness insurance The post 4 Major Misconceptions Singaporeans Have About Their Critical Illness Insurance Plan appeared first on DollarsAndSense.sg. … More »

  • North Korea Successfully Launches Ballistic Missile From Sub Bloomberg - 1 hour 45 minutes ago

    The missile flew about 500 kilometers, suggesting the nation’s missile technology has improved from previous launches, a South Korean defense ministry official said. The missile was fired at about 5:30 a.m. from waters near the city of Sinpo where … More »

  • Australia carrier Qantas soars to record profits
    Australia carrier Qantas soars to record profits AFP News - 2 hours 2 minutes ago

    Australian carrier Qantas on Wednesday soared to a record annual net profit and announced a first payout to shareholders in seven years in a strong turnaround after major restructuring. Underlying profit before tax -- Qantas' preferred measure -- … More »

  • China Foods Mulls Sale of Mainland Coca-Cola Bottling Stakes Bloomberg - 2 hours 12 minutes ago

    China Foods is considering a sale of its stakes in 10 Coca-Cola bottling companies in the country through a public tender, it said in a Hong Kong stock exchange filing Tuesday. The company will sell stakes varying from 7.15 percent to 100 percent … More »

  • World Bank's Kim launches bid for second term as president
    World Bank's Kim launches bid for second term as president Reuters - 2 hours 57 minutes ago

    World Bank President Jim Yong Kim on Tuesday formally launched a bid for a second five-year term as head of the multilateral development lender, whose board pledged an "open, merit-based, and transparent" selection process. The notification … More »

  • Housing sector lifts U.S., European stocks; oil pares gains
    Housing sector lifts U.S., European stocks; oil pares gains Reuters - 3 hours ago

    By Hilary Russ NEW YORK (Reuters) - Homebuilders provided a modest lift to both U.S. and European stock markets on Tuesday, while oil prices got a brief boost from Iran's positive signals on an output ... … More »

  • Pound gains but rand plunges on finance minister probe AFP - 3 hours ago

    The British pound edged higher on the dollar Tuesday but South Africa's rand plunged after Finance Minister Pravin Gordhan was summoned by police. The pound gained after eurozone purchasing manager data ... … More »

  • Oil up on Iran talk; stockpile build cited by API surprises
    Oil up on Iran talk; stockpile build cited by API surprises Reuters - 3 hours ago

    Oil prices rose on Tuesday after Reuters reported Iran was sending positive signals that it may support joint OPEC action to prop up the market, before the market pared gains on trade data showing a surprise build in U.S. crude stocks. Iran, the … More »

  • China Distance posts 3Q profit Associated Press - 4 hours ago

    The Beijing-based company said it had profit of 22 cents per share. Earnings, adjusted for stock option expense, were 23 cents per share. The online education company posted revenue of $30.8 million in ... … More »

  • Era of the Raider Dawns in China, Where Vanke No Longer Immune Bloomberg - 4 hours ago

    While the battle for China Vanke Co. isn’t exactly the "Barbarians at the Gate" takeover of RJR Nabisco by private equity firm Kohlberg Kravis Roberts & Co. during the leveraged-buyout boom of the 1980s, the scale and significance may turn out to be … More »

  • Japan’s GLM Seeks to Cash in on China’s Electric Vehicle Boom Bloomberg - 4 hours ago

    The Kyoto-based automaker is close to signing deals to supply vehicle platforms for about 10 carmakers, including some in China, founder and CEO Hiroyasu Koma said in an interview, without naming them. The company is in discussions with other … More »

  • Analysts Gloomy on Hong Kong’s Exchange After Shenzhen Link News Bloomberg - 4 hours ago

    The proportion of sell recommendations is at its highest level since 2013, according to data compiled by Bloomberg, and price estimates suggest an 8.6 percent stock decline in the next 12 months. “There’s no more optimism in the short term -- the … More »

  • Chinese Insurance Giant Anbang Said to Seek Bank Pitches for IPO Bloomberg - 4 hours ago

    “A Hong Kong IPO would give Anbang a good fundraising channel plus some fresh capital for business expansion, including deals,” Steven Lam, a Hong Kong-based analyst at Bloomberg Intelligence, said by phone Tuesday. … More »

 
Recent Quotes
Symbol Price Change % Chg 
Your most recently viewed tickers will automatically show up here if you type a ticker in the "Enter symbol/company" at the bottom of this module.
You need to enable your browser cookies to view your most recent quotes.
 
Sign-in to view quotes in your portfolios.

MARKET MOVERS

  • Most Actives
    Most Actives
    NamePriceChange% Chg
    2.79-0.02-0.71%
    C52.SI
    0.585+0.022+3.91%
    5TP.SI
    0.99+0.02+2.06%
    H64.SI
    0.153+0.004+2.68%
    AFC.SI
    0.131+0.002+1.55%
    N21.SI
  • % Gainers
    % Gainers
    NamePriceChange% Chg
    0.225+0.015+7.14%
    BKW.SI
    0.124+0.001+0.81%
    A50.SI
    2.44+0.13+5.63%
    P34.SI
    1.165+0.015+1.30%
    A23.SI
    0.555-0.015-2.63%
    BMT.SI
  • % Losers
    % Losers
    NamePriceChange% Chg
    0.345-0.015-4.17%
    D03.SI
    0.245-0.010-3.92%
    RC5.SI
    1.36+0.01+0.74%
    G92.SI
    0.250.00-1.96%
    5ME.SI
    0.665+0.005+0.76%
    AVM.SI

Market Data

  • Currencies
    Currencies
    NamePriceChange% Chg
    1.3518+0.0005+0.04%
    USDSGD=X
    1.5286+0.0016+0.10%
    EURSGD=X
    1.7820-0.0007-0.04%
    GBPSGD=X
    74.1260+0.017+0.02%
    SGDJPY=X
    5.7333-0.0022-0.04%
    SGDHKD=X
    2.9879+0.0121+0.41%
    SGDMYR=X
    9,797.2471-19.457-0.20%
    SGDIDR=X
    4.9149+0.0015+0.03%
    SGDCNY=X
    1.0293+0.0004+0.04%
    AUDSGD=X
  • Commodities
    Commodities
    NamePriceChange% Chg
    1,343.10-3.00-0.22%
    GCZ16.CMX
    18.94+0.02+0.12%
    SIU16.CMX
    103.89-1.81-1.72%
    ^XAU
    2.120.00+0.12%
    HGU16.CMX
    47.62-0.48-1.00%
    CLV16.NYM
  • Bonds
    Bonds
    TreasuryYield (%)Yield Change
    1.14+0.01
    ^FVX
    1.55+0.01
    ^TNX
    2.240.00
    ^TYX