Why You Shouldn’t Invest in Facebook (and it has nothing to do with the Ads)

Apr 11, 2012 · 2 mins read
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It’s been years since the anticipated Facebook IPO and all interested parties seem to be in an eleventh hour frenzy. First GM pulls $40 million worth of Facebook ad revenue from the site. Next comes a report making the rounds in major news outlets that Facebook ad clicks pale in comparison to Google ads. The AP now says this lack of trust may even cut into Facebook ad sales, which make up 82% of all current revenue for the site. Things don’t look so good for this week’s stock market darling…

But keep in mind this is all right before Friday (the rumored IPO D-day). The initial poll data from Associated Press-CNBC suggesting the ads on Facebook are ineffective comes in conveniently right before the IPO.

And these results only serve to heighten fears that the stock may be overpriced. Facebook lifted the stock price on Tuesday from $28-$35 to $34-$38 a piece. More seasoned investors caution against investing right away, while over half of those surveyed say they think Facebook is a good bet. However, one poll of 1004 users (by telephone, ahem) does not make for an accurate picture.

Facebook has almost 1 billion active monthly users, more than half use a cell phone and are under the age of 40.

There’ve been plenty of previous case studies (Expedia went from 250k fans to over 1 million with effective Facebook advertising). Ford even made a jab at GM on Tuesday with a post about how they model their advertisements to have engaging content. And those searching can now find a swirl of discussion around how to make their ads more effective if they weren’t initially.

But the point is not that Facebook ads are effective in the hands of a good copy writer, or that people should still invest in Facebook on Friday (many regular investors caution against buying into Facebook for the time being anyway), it’s that, despite the media frenzy, a small poll doesn’t tell a very good story. 1004 old people are more likely (if their memory serves them right) to click on a Google ad more than a Facebook ad. And this is relevant how? But numbers, particularly with percentages behind them, sell to journalists. Especially when it has to do with the IPO of the largest social network in the world.

Whether we do see Facebook open up for trading on Friday, or ad sales plummet or a whole new revenue model in the near future remains a bit murky. What is for certain is the hilarious and possibly well planned timing of negative news to mainstream media right before the Zuck’s big day. Investors will need much more relevant data than a small poll to tell them whether the Facebook stock is worth the initial investment.