Facebook Inc (FB) Teen Exodus Should Keep Investors Away From Stock

Bottoming with new management

With the huge gains of Groupon Inc (NASDAQ:GRPN) over the last 8 months, one has to wonder if Zynga Inc (NASDAQ:ZNGA) isn’t the better investment now. This group of stocks set the IPO market on fire at the end of 2011, yet the public market investors have suffered nothing but pain from the group. Each stock has lost more than 28% over the time period that Facebook Inc (NASDAQ:FB) has been public.

The daily deals site fired its founder back at the end of February and the stock has seen nothing but positive returns since that event. Only July 1, Zynga hired Don Mattrick, president of the Xbox division at Microsoft Corporation (NASDAQ:MSFT), as CEO to allow Pincus to focus on product development. In both cases, the founder of the company wasn’t ready for running a multibillion dollar public firm. Facebook Inc (NASDAQ:FB) appears to be the third such scenario and favors investors staying out of the stock until Zuckerburg is replaced.

Bottom line

In reality, the biggest issue with this set of stocks and especially Facebook is that the pre-IPO hype was impossible to live up to as a public firm where every corporate detail is scrutinized more. On top of that, the individual business models ran into turbulence whether due to a decline in social games hitting Zynga or an overly competitive market crashing the daily deals sector. Now Facebook is facing the dilemma of the prime user group fleeing the social network for the newest networks. Networks where their parents don’t reside and the teens are free to interact with friends without parental scrutiny.

Investors shouldn’t get the impression that Facebook will fold up tomorrow, but the key with any stock is the entry price for any position. Paying nearly 10 times current year revenue estimates can only be justified if teen users were still flocking to the site. A more reasonable 4 times revenue would only value the stock at around $25 billion and that’s what should concern investors.

The article Facebook Teen Exodus Should Keep Investors Away From Stock originally appeared on Fool.com.

Mark Holder and Stone Fox Capital Advisors, LLC have no positions in any stocks mentioned. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook. Mark 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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