January 22, 2019

Facebook: The Fall of Giants

Facebook: The Fall of Giants

Facebook belongs to an exclusive group of companies, often referred to as FANG (short for Facebook, Amazon, Netflix and Google). Until recently, the group effortlessly maintained its stable global domination; but cracks are starting to show.

On July 25th Facebook endured a fall when its revenues fell short of expectations by $322 million, causing shares to plummet 20% in less than a day!

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The FANG gang is not used to dealing with crisis such as this one. Black Wednesday was the biggest one-day collapse of any listed company in US history. It makes us wonder if this could be the end of an era? Or should traders buy as much Facebook stock as they can in anticipation of a correction?

In 2004, things were much simpler. Mark Zuckerberg was million miles away from even fantasising on being a member of any elite group. During his college years, he launched Facebook from his modest dorm room, along with his other college roommates – Eduardo Saverin, Andrew McCollum, Dustin Moskovitz, and Chris Hughes.

Their initial goal was to help people select college campuses, but it took a massive turn for the best; and they experienced rapid growth, unlike anything they could have ever anticipated.

Facebook, by now THE social media giant, has known good days and bad – all reflected directly on the stock market. The stock market is a turbulent place in nature, and much like in life, one day you’re on top of the world and the next you’re addressing a congressional committee.

In 2018, Mark Zuckerberg was accused of selling user information to the Cambridge Analytica research firm and possibly tilting election results. Zuckerberg is admittedly a genius, but nobody could have anticipated that his appearance before Congress, rather than being his downfall, would result in the increase of the company’s share value by 4.5%!

At the end of the day, Facebook is the queen of the social media environment; it has transformed itself from a simple website to a self-contained ecosystem.

It can still boast 2.2 billion users (that’s nearly a third of the world’s entire population), and its annual revenues are still in the $40 billion region (on a list of 230 world countries ordered by annual budget, it would rank 56 – well above Luxemburg, Bulgaria, Uruguay and Iceland).

It is still one of the strongest, most successful companies out there, and any obituaries are, without doubt, premature.

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