How Low Can Facebook Go? Look to Business Books to Tell the Tale

This trusim is something I alluded to in my last blog posting, and for me, this is a fascinating reality: “If it isn’t a book, it isn’t a stock.” Having just celebrated my 30-year anniversary in the business book industry, I certainly have seen my share of “phenomena” books. Electronic day trading was a phenomenon in 1998 before dying a quick death by late 2001. In the early 1980s, in the wake of the stunning success of In Search of Excellence, every publisher and their mother brought a book out with excellence in the title. That worked for a few weeks before that market died.

Unlike a hot topic like electronic day trading, most social media books have been spectacular failures from the start. I don’t even need the Nielsen Bookscan numbers to know that, for I know intuitively┬áthat this genre of business book would die on the vine. How did I know? Because social media books are the classic case of publishers barking up the wrong tree. Publishers have an incredible penchant of publishing the hell out of the wrong topic at the wrong time. Sure, a few social media books did well, but they are the exception, not the rule. While social media is still growing by double-digits in developing nations across the globe, few top tier publishers are bringing out any new books on this topic. Why? Because people who are active on Facebook and Twitter spend hours on these platforms—and no time reading books on the topic. They don’t have to. They know how to access and use these sites so why do they need a book telling them how important it is or how it will influence their lives or society as a whole?

There is also great competition entering the Facebook space: for example, Pinterest, the “online billboard,” is quickly emerging as the next big thing in social media.

This brings us back to the stock market. As I have mentioned before, I have been short Facebook (that is, betting it to go down) since the end of May. I have always believed that there is a dearth of leadership at the $60 billion company, especially in the chief executive’s office. I knew that if publishers could not make a go of social media books, then the biggest company on the block would have a hard time making it as a publicly traded company. The problem isn’t that the customers aren’t there. With nearly a billion users, they have the eyeballs that would make 99 percent of companies salivate. The problem is that they haven’t found a way to monetize their hundreds of millions of users. And when sales can’t keep up with users you have a problem. And when the entire industry is shifting to mobile, a much smaller platform for advertisements, you have an even bigger problem. While I think there is a good chance Facebook will figure it out eventually, it will require time and a kings ransom to get it right. While the firm has money, they don’t have much time. In late 2012 there are far fewer investors out there and more traders than ever. Fewer and fewer people are buying and holding stocks. That means that companies have less time than ever to right the ship. If Facebook can’t get mobile revenues into the multi-billions by say, Q1 2013, I could see the stock sinking into the high single-digits. Single digits? That’s impossible right? Ask Zynga, a firm that, at the time of this writing is trading at $3 per share after hitting a high of just under $16 per share in April of 2012. Or the discount coupon company Groupon (another company I am shorting), which is down almost 80 percent since it went public last November.

The truth is that no one knows what will happen to Facebook stock. But one thing is for sure: as a book category, social media books are likely to go the way of Friendster and MySpace.

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