Now all the lemmings who blew their money on this charade (something like $20 billion in value has disappeared so far this week) are pointing fingers at each other and blaming everybody but themselves for their venality and stupidity.
From Yahoo! Finance yesterday:
As I write, shareholder suits have already been filed in New York and California. The State of Massachusetts has subpoenaed Morgan Stanley following reports that it allegedly only told a few of its best clients that its analyst was cutting his revenue outlook for the company. The entire underwriting syndicate is being sued, as is Facebook's newlywed CEO and several board members. In addition, the Nasdaq has also been sued, and the SEC and FINRA are launching investigations. Congressional hearings and probes can't be far off.Had they read The Ad Contrarian last week -- or for the last two years for that matter -- they would have appreciated the pile of crap that Facebook value is built on (by the way, it's really fun being smug.)
Here's what the market didn't understand -- and still doesn't understand -- about Facebook.
Facebook, and all online media, are not TV.
Watching TV essentially creates forced exposure to advertising messages. People who watch a TV show also overwhelmingly watch the spots. Contrary to legend and self-reported BS, people are no more likely to get off their asses during a commercial break than they are two minutes before or two minutes after a commercial break.
On the other hand, no one pays any attention to the ads on Facebook. Like tiny little newspaper or magazine ads, they are virtually invisible.
There are people who don't even know there are ads on their Facebook page. They just know there is a column of stupid crap on the right that they never bother looking at. (This is true, by the way, of an enormous amount of web pages. Including this one.)
This is why the click-through rate on Facebook ads is so astoundingly low (so low, in fact, that they refuse to publish it.)
Ads that have no impact are worthless. It's really that simple. And Facebook ads are as close to having no impact as it gets. It doesn't matter if they have a billion subscribers. A billion people ignoring your ad are no more valuable than a dozen people ignoring it..
For a more esoteric explanation, I suggest this article from the former publisher of Adweek.
Until Facebook finds a way to make paid advertising work in their "ecosystem" this problem will not go away. And until investors understand this simple fact, Facebook shares will remain overvalued, despite the beating they've already taken.