You have two companies. Both are social networking sites with immense popularity. Both generate revenue by allowing advertisements to be displayed on their websites (one much more so than the other). And yet in terms of clientele and providing a service with substantial monetary value, these two could not be more different.
Their missions
The mission of the first, verbatim from its latest annual report, is to “Connect the world’s professionals to make them more productive and successful.”
The mission of the second, also verbatim, is to “Make the world more open and connected.”
You probably easily guessed that the two networks I am referring to are LinkedIn Corp (NYSE:LNKD) and Facebook Inc (NASDAQ:FB). The missions of each, describing the service the companies aim to provide, can give you a glimpse as to whether they have any real monetary value.
LinkedIn provides something worth paying for
LinkedIn gives professionals a portal to connect with others in their field. The site allows its users to establish connections that will will expedite their success and further their careers.
In my opinion, that service is a valuable one, and LinkedIn Corp (NYSE:LNKD) provides it to individuals free of charge. Which was a wise move on its part, as LinkedIn could never have obtained the popularity it has by charging each individual member. The vast majority of individuals balk when faced with having to pay for a social networking site.
In providing a top-notch social network for professionals free of charge LinkedIn Corp (NYSE:LNKD) has done something amazing. It has created a large pool of individuals who have both high degrees of education and specialized knowledge. Such a pool is immensely valuable, the kind of value a prospective employer would pay money for.
Additionally, many LinkedIn members are not new to the professional world, but rather people who have already achieved immense success within it. People like that tend to have deep pockets, making them an audience advertisers will pay big money to gain access to.
When it comes to websites that connect employees and employers, only one can achieve massive success. Proving that claim only requires examining recent results from Monster Worldwide, Inc. (NYSE:MWW). In 2012 it posted negative net income of $258.72 million, and has cash reserves that are quickly dwindling.
And that’s significant because Monster operates in more than 40 different countries–so it has already picked a good portion of the low hanging fruit. Despite the market’s rebound, the stock is trading near its 52 week low. All told Monster Worldwide, Inc. (NYSE:MWW) is now trading for less than $600 million, while LinkedIn Corp (NYSE:LNKD) has a market cap near $20 billion. The term top dog means there can be only one.
Facebook’s value
On the other hand there’s Facebook Inc (NASDAQ:FB). Don’t get me wrong, the service that Facebook provides is of tremendous value to some. Providing people with a website that allows them to connect with their friends and loved ones, through the use of pictures and status updates, is a wonderful thing. But there are a lot of problems with Facebook.
For starters, even though I like the idea behind Facebook Inc (NASDAQ:FB), it has been my experience that people use Facebook in a way that is much more detrimental than beneficial. It’s probably the biggest time waster among the college aged crowd (a group which I myself am a part of).
I don’t understand people who are obsessed with Facebook Inc (NASDAQ:FB), as they epitomize so many qualities I frown upon. Caring too much about what other people think is not a healthy behavior. And that’s what Facebook is mostly about, trying to carefully craft your image so you can gain public approval.
The harm of Facebook
Putting my personal grievances aside, the main reason I don’t like the business is because it generates the vast majority of revenue (85% in 2012) from advertisements. Personally, I don’t want any part of a business that generates the lions share of its profits from clickable advertisements. We’ve already seen the damage a business like that can cause a portfolio.
It has been my experience that Facebook Inc (NASDAQ:FB) ads are ineffective. I’ve never purposefully clicked on one, and neither has anyone I know. What’s more, sometimes ads show up on Facebook that are for something you Googled, but have absolutely no interest in buying. For example after researching the iRobot stock, I was hit with ads for the Roomba.
The bottom line
Of these two companies only LinkedIn provides a service that’s worth something substantial, at least in monetary terms. Facebook provides a valuable service, but not one that could generate long term profits. The question with Facebook is, can it find ways to further monetize its platform.
To sum it all up: I think its a travesty that Facebook trades with such a high valuation. Unless it’s able to break away from ad revenue, I don’t see any reason to own Facebook Inc (NASDAQ:FB). LinkedIn Corp (NYSE:LNKD) on the other hand, while not a traditional value investment, is an intriguing company that has the potential to be a big winner. Maybe you should do your own research and see if you agree with me.
Fool blogger Ryan Palmer has no position in any of the stocks mentioned. The Motley Fool recommends shares of Facebook and LinkedIn. The Motley Fool owns shares of Facebook Inc (NASDAQ:FB) and LinkedIn Corp (NYSE:LNKD).
The article A Tale of 2 Networks originally appeared on Fool.com.
Ryan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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