Conventional wisdom among many stock market analysts used to be that highly successful social media companies such as Facebook, Groupon and others would fare well in the U.S. stock market. Yet, surprisingly, just the opposite has occurred in many instances invovling the largest and most successful social media sites.
Some social media outfits have seen their valuations plummet since going public. This has caused a monumental loss, on paper at least, of hundreds of billions of dollars for owners and investors — depending on the company. Investors may include younger employees who vest their earnings in company stock or even get paid with it.
“Facebook’s losses since its IPO aren’t quite as dramatic as those of other social media companies that went public over the past year, including online gaming site Zynga, which has seen its stock price decline 71 percent since its IPO last December, and Groupon, which has seen its share value plunge 84 percent since the company went public last November,” reports NBC News.
Nevertheless, the skyrocketing popularity and dominance of social media continues to radically alter the traditional media landscape. This has taken place despite dramatic market plunges in the wake of initial public offerings (IPOs) and market expectations.
How does one explain this paradox?
Also, should this be of any professional concern to government communicators, who have adopted the use of social media as standard operating practice?
Facebook’s other face
Many investors banked on the Facebook IPO to generate tons of quick cash. They thought it was easy money. However, to their utter dismay, Wall Street looked the other way. This is not to say that Facebook won’t fare well over the long term, but who knows?
Some of its doubters think Facebook doesn’t have enough room to grow. But consider that even as it closes in on a staggering 1 billion users, Facebook still has hundreds of millions of potential users to sign up. Moreover, global population growth is exploding.
Nonetheless, most of the financial news has been negative for the social media behemoth’s stock valuation, not to mention its brand image.
Perhaps social media giants like Facebook need to devote more time on revamping their long-term business plans with new innovations for growth and revenue via the expansion of mobile technology, and less time basking in the media limelight.
“The whole ordeal has also highlighted a unique aspect of social media that investors momentarily lost sight of,” according to US News. “Though it continues to grow as a powerful technological force, social media remains difficult to monetize consistently. By nature it is ephemeral, vulnerable to other types of disruptive technology, and resistant to the kinds of corporate controls that Apple and Google are capable of instituting.”
Wall Street worries
Apparently, most Wall Street insiders are not optimistic about the prospects for Facebook and other large and wildly popular social media sites. But perhaps their conventional wisdom is wrong — if so, it wouldn’t be the first time.
The big question for Facebook and its market competitors is whether another so-called Silicon Valley dot-com bubble will burst?
Some think the answer is yes, while others see glimmers of hope.
“Analysts and investors who think social media stocks are attractive are being creative in their analysis,” according to USA Today. “None of the companies have yet to prove that they can be profitable long term, especially when it comes to mobile-related revenue. Mobile users of social media are working with smaller screens, thus have less attention span and less tolerance of ads taking away from space for content.”
Some wonder whether it’s even possible for the expanding social media bubble to burst, with leading companies being wiped out? While this may appear highly unlikely now, one never knows. Let’s not forget the bursting of the tech-bubble and the housing bubble, which previously sucker punched our economy in the gut.
Assuming the worst, that the social media bubble does burst, how will this affect the U.S. Government’s ability to effectively communicate and engage not only with its own citizens but also with people worldwide?
Only time will tell.
* All views and opinions expressed herein are those of the author only.