Will Facebook Inc (FB) Continue to Plummet?

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Is Yahoo! catching up?

In a traditional form, Yahoo! Inc. (NASDAQ:YHOO) isn’t a direct competitor for Facebook. However, when Yahoo scoops up a name like Tumblr — a microblogging site that hosts more than 100 million blogs — Facebook should take notice.

Though the platforms of Facebook and Tumblr differ, this move shows that Yahoo! Inc. (NASDAQ:YHOO) CEO Marissa Meyer is making a play at “cool.”  According to Alexa.com, Tumblr appeals mostly to the 18-24 age group. Meyer also made a wise move by leaving Tumblr’s CEO David Karp in control. If Yahoo! were to take control of Tumblr, then Tumblr users would be outraged. Don’t be surprised if Yahoo! Inc. (NASDAQ:YHOO) makes similar purchases down the road. If such acquisitions pan out, Yahoo! could steal users from Facebook Inc (NASDAQ:FB).

The bottom line

Thanks to mobile advertising revenue, the long-term potential for Facebook has improved. The biggest and least spoken about problem for Facebook is the macroeconomic environment. If it continues to weaken, then Facebook’s ad revenue (in all forms) will decline. This would leave Facebook Inc (NASDAQ:FB) in a world of hurt.

Furthermore, with Facebook trading at 514 times trailing earnings, 31 times forward earnings, and sporting a profit margin of just 1.22%, initiating a long position at this time doesn’t seem justifiable.

Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends Facebook and Google Inc (NASDAQ:GOOG). The Motley Fool owns shares of Facebook Inc (NASDAQ:FB) and Google.

The article Will Facebook Continue to Plummet? originally appeared on Fool.com.

Dan 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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