Get Off the Facebook Bandwagon

Facebook (FB) may look like one of the top new stocks on sale on the NASDAQ but, as history has shown, the IPO’s of technology companies often start at inflated prices that are nowhere close to their actual value.

Yet, Facebook’s IPO is too hard to judge because we simply don’t know enough about how the company makes money.

Facebook certainly may look like the big dog of the NASDAQ. In its first day, the stock’s initial public offering started at a high price of about $38 per share. However, the price almost remained flat by the end of the day. Facebook may possibly increase in value over the next few months, but the price could just as easily bottom out at a much lower price.

This is only the company’s first day of trading. The price may start to rise steadily as investors assess the full value of the company and its profits. Investors should just stay on their toes and analyze Facebook’s performance, though. Many dot com businesses have had a bad reputation for starting high and bottoming out at an extremely low value thanks to the dot com era.

Keep in mind, though, that other social network-related companies have not performed well in the long run, either. Zynga started its initial public offering at around $10 per share in November 2011. The value of the stock has since dropped to about $7. Many of the new social network companies base their value on a very inconsistent user base. They suffer from many of the problems that plagued the first dot com companies in the 90s.

Each dot com company has different strengths and weaknesses. The best advice for technology investors is to research each new IPO voraciously. At this time, Facebook (FB) has plenty of value that can push it over $38 per share, the price it was released at. Social network game companies depend on Facebook as a medium to share their software. The network has a boatload of sharing functions. Friends can literally play and socialize with each other in the same social network.

Facebook does many things that cannot be done by other companies. Google even tried to imitate Facebook’s success by starting its own social network. However, Google+ is nowhere near as popular and as simple to use as Facebook.

At the same time, Google benefits from a much more reliable advertising system. It earns a ton of profit from its AdSense advertising system alone. The search engine uses its ads everywhere on the search website. Facebook’s advertising system amounts to providing a page for corporations to promote their products to users. The company recently started running more banner ads, but the entire system just isn’t as simple as Google’s simple text links.