Three Devastating Reasons Facebook's IPO Could Flop
On the cusp of Facebook's (NASDAQ: FB) long-awaited IPO, analysts and investors continue to argue over the social network's potential success. But what are the real dangers? Why could Facebook end up a dud?
Bearish analysts and bloggers alike will tell you that, even with 900 million users worldwide, Facebook has yet to prove itself. They say that the company has yet to find a way to monetize its users, which are useless without profit.
A recent AP-CNBC poll found that many Facebook users don't trust the social network, and that a large number of those people would not consider investing in the firm.
These are reasons to be concerned, no doubt. But on the flipside, Facebook has 900 million users who aren't going anywhere, a host of competitors who are struggling to compete (Twitter excluded), and a crowd of investors who can't wait to own a piece of the company.
But where will the market head this morning? How will Facebook close this afternoon? Is the company destined for greatness…or destruction? While success is within reach, there are a number of reasons why Facebook may not repeat the record-breaking gains of LinkedIn (NYSE: LNKD).
3. Fear of What the Next Guy is Doing
Facebook could have a million people who are dying to invest. But if the majority of those investors are fearful of where the market is headed, there could be a problem.
Let's suppose that investor fear keeps the stock from rising today -- or worse, let's imagine that Facebook closes at a loss. Then what? How will investors respond once the dust has settled and Monday comes?
The problem with a decline today is that it might take a major market-moving development for Facebook to rebound. But if investors choose not to embrace the social network out of fear of what others are doing, it will quickly turn into a vicious circle that may never be remedied.
2. Too Much Hype
If Facebook was a movie, its IPO would likely be compared to The Avengers. It may not have a cast of well-known characters, but the social network does have one highly recognizable star (Mark Zuckerberg), a plethora of devoted (some would say obsessed) fans, and an immeasurable amount of hype.
That hype worked in Disney's (NYSE: DIS) favor two weeks ago when The Avengers was released. But it failed to do the same for Disney's other "blockbuster," John Carter. Granted, that film was based on a book that no one read, had little star power, and looked like Avatar meets Gladiator meets Princes of Persia. But it came to theaters with a ton of media hype, a huge marketing campaign, and an enormous production budget -- just like The Avengers.
To be clear, Facebook is closer to The Avengers than John Carter. But there are times when having an excessive amount of hype can backfire. With so much fear and skepticism surrounding Facebook's IPO, this could be one of those times.
1. Not Enough Genuine Interest
Here's the funny thing about hype: you can't measure its success until the product being hyped is released. In this case, the "product" is Facebook shares. And while every news outlet in the world wants us to believe that investors are at least interested in Facebook's IPO, there is the chance (however slight) that traders don't care nearly as much as the media would have us believe.
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