This morning, at 9:30AM EST, Mark Zuckerberg rang the opening bell at the NASDAQ stock exchange. Except, like any good hacker, he wasn’t physically in New York. Instead, he rang the bell “remotely” from Facebook headquarters in Menlo Park, California. This kicked off the opening day of Facebook as a publicly traded company giving millions of people the opportunity to start investing in Facebook.
Of Motes and Draw Bridges
So why won’t I be investing in Facebook? Taking an idea from Warren Buffet, one of the most respected investors in the world, the idea of investing in Facebook is completely foolish. Here’s why. A company is like a castle. In the Middle Ages, one of the main purposes a castle served was to provide protection to the people who lived in the surrounding area from marauding armies looking for easy loot. When sentinels would give the word that an invading army was approaching folks ran to the castle for safety. How did the castle provide safety? The massive stone structure of the castle was surrounded by a body of water called a mote. The wider the mote, the harder it was for an army to get close enough to the castle for an attack. The only way in and out of the castle was by a draw bridge that was pulled up in the event of of an attack.
Companies are built in the same way. Take Coca-Cola for instance. Their mote is the secret ingredients found in their fizzy beverage that no one is able to imitate along with their global brand recognition. Google is another example. Their mote consists of hundreds of innovative internet and software products, not the least of which is their secret search algorithm that has enabled them to become the number one search engine in the world.
Thinking of Investing in Facebook? Think Again.
But what about Facebook? What is their mote? At this point, their only mote is their brand recognition and the fact that close to a billion people use them to connect socially with family and friends. What if another company developed a more innovative, intuitive or easier way of connecting socially? The shifting sands of the web could easily obliterate Facebook’s impact on the world as quickly as it has made websites such as Lycos, MySpace and Xanga all but forgotten relics of the past. This vulnerability is what makes Facebook a poor investment combined with the fact that Facebook is trading at 70 times it’s projected 2012 earnings. Contrast this price to earnings ration with Google or Apple’s which are both in the 12-20 range and it is easy to see why I won’t be investing Facebook stock… not yet anyway.
What do you think? Is Facebook a worthwhile investment? Sound off in the comments below: