Seriously, Don't Buy Facebook Stock

This article is a response to Fool contributor Andrew Marder's hilarious article, "Seriously, Buy Some Facebook Stock." Andrew is a friend of mine, therefore I know he can handle every terrible thing I say about him and his beloved Facebook.

I'd like to put to rest this obnoxiously overdone Facebook (Nasdaq: FB  ) debate. Did investors get hurt? Yes. Did Wall Street do something evil again? Yes.

There were plenty of signs out there that Facebook wasn't the gold at the end of the 401(k). The finance-related issues have been well-covered by now, but we didn't even need to glance at an income statement to see the problems.

Take a deep breath...

If the glove don't fit -- hire a better ad team
Before I read the prospectus for Facebook, I already knew the company wasn't the place for my money. How could I have such amazing insight? Well, let's look at the "targeted" ads that are on my Facebook page right now:

70% off Modern Designs! 2,444 People like TouchofModern

First of all, fire that copywriter. What the hell is a modern design, and why would I buy one, even if it were 70% off? Do I care about the 2,444 people who "like" it? No. Millions of people "liked" Four Loko. I tried three one night; decorum prevents me from describing what happened.

The New Executive Hoodie -- Made with Superfine Merino Wool

Is this Mark Zuckerberg's side business? After he lost billions of dollars in two weeks (and sadly only has $15 billion left), did he decide to mass-market his dime-store sense of fashion? When I buy a hoodie, it's not "superfine merino wool" -- it's cotton.

If the ad-targeters knew what they were doing, they'd be putting pictures of Burnett's Gin and Game of Thrones all over my homepage.

Is it any wonder GM (NYSE: GM  ) yanked its $10 million Facebook ad budget? Facebook was probably sending out Chevy Volt advertisements to the Saudis.

With an advertising budget of $1.8 billion, the $10 million wasn't a big slice for GM. In fact, you'd think GM could spare it for the sake of "being cool." The GM story suggests Facebook ads are "weaksauce."

"But Google IPO'ed at 217 times earnings!"
Shut it, Andrew. Go back to writing philosophical theses on the social impact of Mike's Hard Lemonade.

Google (Nasdaq: GOOG  ) entertains me before I even start searching. The other day, I did nothing at work. I mean, nothing. The Google logo was a synthesizer that you could play and record music on. What does Facebook's logo do? It looks like it should be a label for an antidepressant.

And, speaking of advertising, Google at least shares its ad revenue with the other parties involved. Facebook takes your ad money and turns it into a giant ice sculpture in Sweden.

You know what Google doesn't do? It doesn't give me never-ending loads of junk about other people I don't even remotely care about. Google, on the other hand, already knows what you want before you can finish typing it. Rather than taking five years to become such close friends with someone that we finish each other's sentences, I just go to Google and blush when it knows what I'm thinking.

It's a focused tool for surfing the web. Facebook is the official sponsor of ADD.

"Payment platform": an industry buzzword!
I like the middleman business model that siphons off a bit of everyone's sales, but that only works when your community is actually selling something.

Call me old-fashioned, Andrew, but one day you will realize it doesn't make any sense to pay real money for a fake tractor. I know it's exciting when your fake crops are ready for their fake harvest so Zynga (Nasdaq: ZNGA  ) can post something on your wall that makes you look cute, but are you out of your mind? Did you decide that in this time of economic strife, part of your precious savings would go toward buying "virtual money" that is worth virtually nothing? Why don't you just throw a Molotov cocktail into your savings bank?

If Facebook wants to sell apps to its 900 million users, it can go ahead. But try to make it like Apple's (Nasdaq: AAPL  ) app store. Users download 46 million apps per day from Apple. Apple's apps offer function -- even if it's an app that allows you to virtually "tickle" your iPhone. Facebook's current "Buy One, Get Nothing in Return" deal isn't appealing to most of us.

Brand-Aid
Facebook is a brand. But what kind of a brand?

When I think of brands, I think of Coca-Cola or Mercedes Benz. These are brands that are synonymous with what they sell. You don't get a soda; you get a Coke. Buying a Mercedes is not just "buying a car."

When I think of Facebook, I think of my friends who post pictures of themselves at parties with "YOLO" -- an acronym for "You only live once" -- next to it. Jack Black said it best when he tweeted, "I am fairly certain that 'YOLO' is 'Carpe Diem' for stupid people."

Facebook's brand is that it's a meeting place for the world's dumbest minds. It's like going to a TED talk with the cast of Jersey Shore.

Facebook's brand has to mean something valuable and unique to its audience. Yes, "Facebook," like "Google," has become a verb. But when I look it up in a thesaurus, it reads, "time-suck," "stalker-tool," and "no actual friends."

If Facebook were a country...
Yes, Andrew, we know. Facebook has almost a billion people using its "services." But really, what if Facebook were the third-largest country in the world? It would be a place where you have no privacy. You would starve because you'd keep farming fantasy crops instead of real ones. The ruler would be a dictator who goes to great lengths to ensure he has far more power than any other individual. You could never really leave, because it stores all of your information on a giant server powered by the souls of children.

If Facebook were a country, it would be North Korea.

A "Thank you"
Andrew, Mark, Facebook: You have all been great sports. Andrew is an incredibly talented writer with a great eye for investing. Mark revolutionized the social experience by taking it online. I use Facebook every day to avoid doing real work and will continue to do so for a long time.

Feel free to leave death threats and/or your phone number in the comments section below. If you're like me, I feel bad for you, but at least there are stocks out there that won't make you go crazy. If you're looking for an online leader that's already proving itself, this company is a fraction of Facebook's size but has some features the social-networking juggernaut probably wishes it had. Find out more about this company in our special report: "Forget Facebook -- Here's the Tech IPO You Should Be Buying." Pick up your free copy today by clicking here.

Fool contributor Michael Lewis would do awful things before owning Facebook stock. He also owns none of the other stocks mentioned. The Motley Fool owns shares of Apple, Facebook, Google, and Coca-Cola. Motley Fool newsletter services have recommended buying shares of Apple, Google, General Motors, and Coca-Cola, as well as creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (50) | Recommend This Article (83)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 04, 2012, at 11:02 AM, glynn1950 wrote:

    Google " The Koch brothers Exposed" and see who the right wing republicans tea baggers and facebook take their orders from!!!!

    Facebook is now disabling peoples accounts (Censorship) that post anything against the Koch brothers, Roves’ PAC or the tea bag party on any website that they monitor!!!!

    You can not post on any of your local news sites when Facebook censors you!!!!

  • Report this Comment On June 04, 2012, at 11:13 AM, Grunchy wrote:

    The article is interesting but we have to look at Facebook as a business. As in, what is the source of its income, how will it grow or improve that business, etc. The one thing that spooks me most about Facebook is how little work it actually represents for such a massive valuation. That's why a few folks can work for a year and build Instagram and sell it for $1 billion. I have a feeling that Facebook is going to lose all its money buying out all its competition, until it runs out of money, at which time it will be swamped by the competition.

    Anybody can make a web services company, heck even I could do it.

  • Report this Comment On June 04, 2012, at 11:21 AM, easttexas51 wrote:

    Luv it! Great article. LOL LMAO CUL8TR and every other goofy acronym that the www. has generated.

  • Report this Comment On June 04, 2012, at 11:33 AM, Millsteen wrote:

    It's nice to get in early and cheap and yes the brand is huge but how do they monetize it? They still have to prove the advertising model. If they charge users to visit the site, my guess they might be left with the 1% who do most of the posting in each friend community. Yes, they have 900 billion people but none are connected to each other. You're basically hanging out with your small community of friends.

  • Report this Comment On June 04, 2012, at 2:48 PM, jacobandersen72 wrote:

    The FTC/SEC should absolutely block Facebook from buying one of its strongest competitors -- Instagram. Instagram is a photo based social network that now has 40,000,000 users. its one of the strongest competitors facebook has seen to date. Facebook has network effects. Without network effects Mark and Co. would have had strong competition a long time ago. Instagram is one of the few companies that found a hole in Facebook's armour through its early jump on mobile platforms. It would be a shame to simply watch Facebook buy away the competition. Do the right thing FTC/SEC and block the buyout. Make Facebook compete.

  • Report this Comment On June 04, 2012, at 4:23 PM, CaptainWidget wrote:

    Great, down to earth talk about the failure of the "biggest" IPO in history that apparently, nobody saw coming.

  • Report this Comment On June 04, 2012, at 4:42 PM, matkohlk wrote:

    funny but to the point.

    "F" stand for FXXX, which the stock price can attest.

  • Report this Comment On June 04, 2012, at 4:51 PM, mikecart1 wrote:

    1 Reason:

    Don't buy Facebook because if you have never spent a penny on the site and you don't know anyone else that has spent a penny on the site, and they have never heard of anyone spending a penny on the site, why would you spend a penny to invest in this site?

    This is Investing 101 guys. It isn't that complicated. And it definitely isn't a speculative/future play on how many customers they will get. The customers are there. The product is invisible because it doesn't exist.

  • Report this Comment On June 04, 2012, at 4:57 PM, XMFMadMardigan wrote:

    @mikecart, very true, but not a cure-all concept. I've spent money on Groupon, and know plenty of others who have.

    I mean, we all need to drive a NASCAR racer from time to time, right?

    But I wouldnt throw a dime behind their stock, either. So just because people spend money on a site doesnt mean its an investor-haven.

  • Report this Comment On June 04, 2012, at 4:58 PM, militauro wrote:

    Jack Black said it best when he tweeted, "I am fairly certain that 'YOLO' is 'Carpe Diem' for stupid people."

    ^ That is awesome...

  • Report this Comment On June 04, 2012, at 5:07 PM, Risky88 wrote:

    awesome

  • Report this Comment On June 04, 2012, at 5:08 PM, FreethinkerKW wrote:
  • Report this Comment On June 04, 2012, at 6:33 PM, hbofbyu wrote:

    Amusing article but not much substance.

    Facebook has options. I could see Facebook being the virtual gateway were you have a night out with your friends even though one is New York and the others are in Philadelphia and San Diego. Gaming and virtual reality is where people will spend all their time. There is a generation rising that will spend more time in virtual than in the real world.

    And you thought Farmville was addictive....

  • Report this Comment On June 04, 2012, at 6:44 PM, mhonarvarthe2nd wrote:

    Virtual gateway...night out with friends..

    didn't people and Corporations already try that with Second Life

    Bank Failure in Second Life Leads to Calls for Regulation

    http://www.wired.com/gaming/virtualworlds/news/2007/08/virtu...

  • Report this Comment On June 04, 2012, at 6:47 PM, mhonarvarthe2nd wrote:

    The LA Times had a story last week about companies abandoning their presences on Second Life due to poor return on investment. From the sound of things, many companies that have stayed may not be long for the world:

    But the sites of many of the companies remaining in Second Life are empty. During a recent in-world visit, Best Buy Co.’s Geek Squad Island was devoid of visitors and the virtual staff that was supposed to be online.

    The schedule of events on Sun Microsystems Inc.’s site was blank, and the green landscape of Dell Island was deserted. Signs posted on the window of the empty American Apparel store said it had closed up shop.

    The story gets to the heart of the matter when it says, “most firms were more interested in the publicity they received from their ties with Second Life than in the digital world itself.”

    You see this all the time. Companies launch MySpace pages or Twitter accounts or iPhone versions with no rationale beyond getting a short term media hit. After the buzz dies down it becomes pretty clear that the emperor has no clothes

    http://www.bivingsreport.com/2007/companies-abandoning-secon...

  • Report this Comment On June 04, 2012, at 7:09 PM, TMFRhino wrote:

    Very funny Mike... Even if I did just leave the office to see Andrew curled up in a ball stroking an old Troll doll saying "things will get better" over and over again. I'm sure you had nothing to do with that...

  • Report this Comment On June 04, 2012, at 7:09 PM, traveler75000 wrote:

    I seriously pray that you are wrong about people living 'virtually' versus 'in the real world'. Too many American children do so because they are allowed to do so. It is also why we have the fattest nation in the world. Europeans consider the US a place where bad things come from and they are correct. We waste time, money and our lives doing 'things', whether virtually or not, and we wonder why the country is in the shape it is in.

    Facebook has never held an appeal for me personally. No one needs to be that connected, except perhaps the President, and he has people to be connected for him! Investing is supposed to provide a connection to a product and since there is no product except connectivity coming from Facebook, there doesn't seem to be a reason to buy into it. The service itself is free. Why buy the cow when the milk is free?

    As a new investor (less than 3 yrs), I saw a big fall coming for Facebook. Maybe I'm too new at this to see where the earning potential for Facebook is safely hidden away, and maybe not. Either way, I'm not buying it and something would have to change drastically for me to do so.

  • Report this Comment On June 04, 2012, at 7:12 PM, hbofbyu wrote:

    Maybe Facebook really will be the next Yahoo.

  • Report this Comment On June 04, 2012, at 8:19 PM, TMFRedRam wrote:

    Well played, Michael.

    Eric, that was really more for my fledgling alt-post-hardcore, finance themed band, Martin Short And The Options.

  • Report this Comment On June 04, 2012, at 8:31 PM, XMFMadMardigan wrote:

    Eric, Andrew: find solace in the fact that they're calling me "The Next Andy Rooney". Soon I'll be behind a rustic desk ranting about that damn TV Guide channel. Why can't they just slow down the channel scroll?

  • Report this Comment On June 04, 2012, at 10:17 PM, mattysmitty wrote:

    Every single person I know has Facebook, hardly just a meeting place for "the worlds dumbest minds".

    Very ignorant IMO, although I didn't buy the IPO I will buy when it reaches the floor.

    You are likely to old to understand the power and potential of the website, which as far as I can tell, has an ABSOLUTE monopoly on social networking.

    Twitter is cute, but doesn't offer pictures. Everyone who has Twitter also has Facebook because Facebook is email for the modern day.

    Kony 2012 anyone?

    FACEBOOK HAS A BRIGHT FUTUTRE, A BRIGHT CEO, AND A BOAT LOAD OF CASH TO GET IT RIGHT! QUIT BASHING AND FIND A STOCK YOU LIKE INSTEAD OF BRINGING EVERYONE ELSE DOWN!!!!!

  • Report this Comment On June 04, 2012, at 10:51 PM, TerryHogan wrote:

    @mattysmitty

    Maybe you are "to old" (sic) to know that writing in all caps is considered yelling.

    But I'm pretty sure that spelling things incorrectly while stating that all your friends have Facebook is not exactly disproving that it is for "the worlds dumbest minds" (sic).

    No hard feelings, just review some grammar rules before your next status update.

  • Report this Comment On June 04, 2012, at 11:36 PM, Shawnerz wrote:

    Very nice, Andrew!

  • Report this Comment On June 05, 2012, at 12:11 AM, bdelana wrote:

    Facebook IPO

    If it seems too good to be true, ...

    Well, it was ...

  • Report this Comment On June 05, 2012, at 12:59 AM, CaptainFiveBaggr wrote:

    Funny article. But lack of substance and knowledge of the company and industry left me with a smirk and a bitter feeling that I wasted 90 seconds to read a Fool.com cover story that lacked anything relevant to investing.

    The epitome of a cooler stock.. every idiot wanted in during IPO and it has bombed.. every idiot now wants out 3 weeks later. Doesn't take a genius to realize what the stock is going to do now...

    Traders are controlling this stock and bullying retail investors. 3 mo's it goes down to a bottom of 18... 9 months later it will be hovering around $30 for a while... 2-3 years from now this will be a $70-90 stock.

  • Report this Comment On June 05, 2012, at 4:12 AM, trentschoneweis wrote:

    I read several Fool articles every day, and this is the best one ever. Thank you.

  • Report this Comment On June 05, 2012, at 8:20 AM, wasmick wrote:

    "Great, down to earth talk about the failure of the "biggest" IPO in history that apparently, nobody saw coming."

    You mean no one with any brains, right?

    Other than the greedy insiders who assumed there would be plenty of greater, greedier fools out there (because frankly there pretty much always are), to take them out I can;'t anyone with any sense buying into this.

    But it wasn't the greed of the uninformed that made this into a gigantic overblown media circus of an IPO...it was all wall street's fault. That's what learned at Fool.com today. Thanks!

  • Report this Comment On June 05, 2012, at 8:35 AM, gnpowers wrote:

    Where is the "LIKE" button?

  • Report this Comment On June 05, 2012, at 8:59 AM, DCUDFlyer wrote:

    Really enjoyed the article and I think it captured my enjoyment with Motley Fool - a blend of informative, technical articles with entertaining stories. Well done.

  • Report this Comment On June 05, 2012, at 9:12 AM, shesdangerous wrote:

    Both articles were interesting and quite entertaining. I think Andrew's article gave us more of a buisness perspective and a real argument (with hard numbers) as to why we should buy FB. And you...well...you chose to whine about why it irritates you. I would have enjoyed reading a real, honest buisness case with hard numbers telling us why we should not buy FB. We can all make the comparisons to Apple and Google but Apple is Apple and Google is Google just as Facebook is Facebook. They all have their own strenghths, weaknesses and balance sheets.

    Thanks guys for the entertainment, but from one writer to another, I've gotta go with Andrew as the winner of this one!

  • Report this Comment On June 05, 2012, at 10:43 AM, jargonific wrote:

    I would keep an eye on two things. First, NFLX and how they do over next few weeks. Second, what happens next with Apple/facebook ties.

  • Report this Comment On June 05, 2012, at 10:49 AM, IsaCann wrote:

    Oh this is clever! I am a marketing generalist and a website designer at that, and work in the realms of Google and Facebook until I drop nightly. I agree that Facebook "targeted" advertising has failed. So no, not a good investment.

    This is side-splitting: "It's [Google is] a focused tool for surfing the web. Facebook is the official sponsor of ADD." Yes. And to that end, I believe that Facebook will have another failure, greater than its ad tactics: people will slowly stop using it as a communications default.

    The decline will start with the middle-aged people. They'll get bored. It's a shallow thing, Facebook. Then the young people. There be another technology - or the US will wake up to the fact that their kids might be served to get some exercise instead.

    In any case, as Mr Lewis mentions, not everyone is interested in the number of [contrived] "likes" for any given thing, and that bit of website script may have seen its day in the sun. And oops, the whole premise for targeted ads goes poof!

    ~ Isa, MediaArchitects.co

  • Report this Comment On June 05, 2012, at 10:56 AM, NEMnyWtch wrote:

    Move over Mr. Housel, I might have a new favorite writer! Although you are brilliant, this guy is both insightful and writes with hysterical flair! Thank you for the great article, it made my day.

    I for one, did not buy it, nor do I intend to at any point in the near future.

  • Report this Comment On June 05, 2012, at 11:21 AM, LTContrarian wrote:

    For inquiring minds that want to waste time with frivolous posts, stupid comments and people that are consumed with wanting to tell everyone what they're doing at all times, then Facebook is certainly the place for you.

    As far as an investment, I will have to pass on this one. I also refuse to submit to the further dumbing down of the human race. Much like useless reality shows FB is more or less a great way to waste your time, if that's your bag.

  • Report this Comment On June 05, 2012, at 12:37 PM, romad20000 wrote:

    Lets see the ads on my feed currently

    Constipation study- Nope I'm good in that department

    Heart Attack study- Nope Im 23

    Bingo/slot games- Nope don't play any FB games

    Game of thrones- WTF is that?????? is it like chess

  • Report this Comment On June 05, 2012, at 1:56 PM, tryan102790 wrote:

    Finally!!!! Some rational thought. Getting anywhere near Facebook is pure speculation and NOT foolish!

  • Report this Comment On June 05, 2012, at 3:27 PM, thunderboltnova wrote:

    Don't pay any mind to this article. If Facebook stock was on fire, he would be saying how great the company was. That's how it works, all stock analysts go with the flow adding onto the drama.

    All we can do is wait and see if Facebook succeeds just like every other company.

    Do I like the way Mark Zuckerberg runs the company? NO, I don't care for the limited friend requests and people liking companies like Walmart.

    He should have it so you decide if you want to recieve friend requests from people you don't know and he shouldn't do the choosing for you. This will be his downfall.

  • Report this Comment On June 05, 2012, at 3:48 PM, fennecfoxen wrote:

    If your problem with Facebook is a bunch of YOLO losers hang out there, maybe the problem isn't with Facebook but with your so-called friends...

    ... Not that I'd say the stock is a great deal or anything, mind you.

  • Report this Comment On June 05, 2012, at 4:25 PM, thunderboltnova wrote:

    The main thing is most people don't just want to talk to old acquantances and would like to meet new people. FB doesn't really allow that to happen.

    You are breaking their rules by doing so.

    No one knows if the stock is a deal or not. No one ever predicted Microsoft would go crazy from the 80s through the 90s. There are many companies that have zoomed into the stratosphere and nobody knew it would happen.

  • Report this Comment On June 05, 2012, at 11:18 PM, TMFRedRam wrote:

    @shesdangerous, you're my new favorite reader.

  • Report this Comment On June 06, 2012, at 10:25 AM, gilbertmj2 wrote:

    Would love to hear Mike's take on BitCoin. Is the beef with the fact that you buy virtual money, or the fact that you buy virtual money worth virtually nothing?

  • Report this Comment On June 06, 2012, at 10:52 AM, seghetti wrote:

    Well played, Michael Lewis. Well played.

  • Report this Comment On June 08, 2012, at 11:47 AM, yosping wrote:

    "Facebook's brand is that it's a meeting place for the world's dumbest minds. It's like going to a TED talk with the cast of Jersey Shore."

    Well said, Mr. Lewis.

  • Report this Comment On June 08, 2012, at 1:38 PM, wagsz wrote:

    Did you really talk about the difference in Google and Facebook's logo in an investment article as if it has impact. Alrighty then..

  • Report this Comment On June 08, 2012, at 3:58 PM, Ob892 wrote:

    Laughed till I cried Mike-a totally hilarious take on the IPO

  • Report this Comment On June 08, 2012, at 3:59 PM, Luke721 wrote:

    Michael Lewis - to paraphrase Dylan "we don't need a weatherman to tell us which way the wind blows". As Hotnovass notes above, if the IPO was successful the other direction we'd have all these talking heads, including Mr. Lewis, telling us why, and ruing the fact that they couldn't get in. Who knows where Facebook is headed? Me, I'll gladly take a few hundred shares at $28/share (which certainly seemed untouchable a month ago) and let it ride. One month does not the life of an investment make, as the last 30 days in the life of Facebook dramatically illustrates.

  • Report this Comment On June 08, 2012, at 6:29 PM, noflu wrote:

    Sorry Michael, though I bad mouthed the company, I like Facebook stock, have the crazy idea it'll defeat Google and be worth $550 a share one day, soon.

    Now's the time to get some Face!

    Add's my friend, Facebook will be worth alot because of it's adds.

  • Report this Comment On June 10, 2012, at 10:24 AM, alamothe34 wrote:

    thanks for putting into words what i was thinking!

  • Report this Comment On June 11, 2012, at 3:01 PM, mainzy00 wrote:

    loved this article!

    the power facebook wields is very significant ... BUT, google is almost a utility for my generation, I USE googles services, including the complex beast that is Android, I have no facebook account because it is simply a meeting place for very questionable characters, characters I go to great lengths to avoid in day to day life, to say the least, facebook gives very little back, I would not give them my time or money in any form, 'nuff said!

  • Report this Comment On June 17, 2012, at 6:12 AM, thidmark wrote:

    "Europeans consider the US a place where bad things come from and they are correct. We waste time, money and our lives doing 'things', whether virtually or not, and we wonder why the country is in the shape it is in."

    Yeah, those Europeans sure have got their act together ...

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