NEW CASTLE —
Remember the 1990s?
Those were heady, high-flying financial times, with the tech stocks booming on Wall Street.
Portfolio values were on a seemingly endless upward path. Serious people (at least in some eyes) were talking about the end of the business cycle with its inevitable ups and downs. Growth, we were told, was destined to be permanent.
It was the time to sweep out the old and bring in the new. That dusty old fogey, Warren Buffett, was being dismissed as a financial has-been. His corporation, Berkshire Hathaway, refused to invest in tech companies, because Buffett had the audacity to say he didn’t understand what they did or how they made money.
How quaint. And how accurate.
When the dot-com bubble burst, Buffett was standing tall, while many of those Internet companies collapsed and vanished.
Why? Because the business cycle hadn’t gone away, it was just waiting to re-establish itself. The excess and greed of the era meant many investors were operating with blinders. They ignored the reality that Buffett easily understood: Even the most modern of corporations have to make a buck in order to survive.
When the bottom fell out of the tech market, hard lessons were learned. People investing in these companies demanded results — profits and real growth. That’s the way it’s supposed to work.
But then came Facebook. Here was an Internet behemoth with literally hundreds of millions of customers creating billions of hits on its website. How could it not make money for investors?
Well, here’s how:
Last week Facebook released its first quarterly earnings report as a publicly owned company. While the report met Wall Street estimates with a 32 percent increase in revenue, that figure represented a slide in growth of 45 percent from the prior quarter.
Meanwhile, as Facebook invests in ways to generate revenue, its costs in the latest quarter rose 295 percent.
No matter how you slice it, those aren’t encouraging numbers. And the stock was hammered as a result, hitting a new low on Friday. The stock price dipped below $27 per share, well below its initial public offering high of more than $38 per share.
These figures do not indicate Facebook is on the verge of collapse. But for prudent investors, they are a warning. And the generally downward trend of Facebook’s stock since it first went public in May suggests buyers were attracted to the glamour of the company, rather than the bottom line.
A big problem with Facebook is its size. With so many users already in place, what is the company’s real growth potential?
And it’s worth noting all those users pay nothing to be Facebook members. Money is made only when businesses agree to post ads on the site, hoping to attract attention from Facebook’s massive membership.
But some companies question whether ads on Facebook really pay off, while some users worry about privacy and related concerns that occasionally crop up regarding the website.
Yet Facebook does have the potential to reverse its fiscal course. Its base of users represents a lucrative potential market — if truly effective ways can be found to tap into it.
On the other hand, the basic nature of modern technology poses a constant threat to high-tech firms such as Facebook. There was a time when a company called MySpace was the hot spot for social networking. Is there something out there poised to replace Facebook?
Personally, I’m inclined to follow Warren Buffett’s lead on such matters.
Columns
Related Photos
-
Mitchel Olszak, Dear Reader
Discussion
DEAR READER: Facebook’s fiscal slide looks familiar
- Columns
-
-
Mitchel Olszak: Snooping threat to the free press
In “All the President’s Men,” reporter Bob Woodward conducts late-night meetings with a source in a parking garage. That source, Deep Throat (later revealed to be high-ranking FBI official Mark Felt), was worried that he would be exposed as a tipster in the Watergate scandal.
-
Culinary Conversation: A day in France— or close to it
Here’s some advice: If your spouse packs your lunch, never complain about the contents. I wasn’t actually griping. I just noted that it lacked excitement. The response from spouse was — our kitchen isn’t the Ritz Carlton.
-
John K. Manna: Data shows decline in number of primary voters
Voter participation isn’t what it used to be. That’s nothing new, but there has been a significant drop in voting here in Lawrence County. And it’s happened suddenly, particularly in the so-called “off-year” elections.
-
Dave Ramsey: Avoid college loans if you can
“Dave Says" is a weekly column featuring financial advice from nationally syndicated radio host Dave Ramsey. His column is filled with timely, relevant questions and answers taken from actual letters and calls on Ramsey's radio program, “The Dave Ramsey Show.”
-
John K. Manna: New legislative districts give advantage to local lawmakers
We finally have a map, and area state legislators have to be gushing with joy. The map, which reshapes state House and Senate districts in Pennsylvania, gained the approval of the state Supreme Court this week.
-
Mitchel Olszak: Toomey takes a chance on guns
How does a conservative Republican senator representing a state with a Democratic majority protect himself politically? One way is to take positions that tend to straddle the nation’s ideological fence.
-
John K. Manna: Shortfall in state tax collections means painful decisions lie ahead
I don’t deny that there are really smart people in Harrisburg who deal with the state’s budget and taxes. But I have to wonder what any of them — including the governor — think when it comes to taxes.
-
Culinary Conversation: Weeding out cupcake recipes
They’re everywhere. They’re everywhere.I’m talking about cupcakes — those individual desserts in their frilly little papers. They don’t require a knife or fork and sometimes the frosting is as delectable as the cake itself.
-
Culinary Conversation: Easy selections lighten up your day
A highlight of my working day is receiving a contribution to Culinary Conversation. Anita Guyton, a Volant shop owner, was kind enough to pass along two recipes she obtained from the back of a can of tomatoes — black bean salsa and cheese grits.
-
John K. Manna: Term limits again considered
Some things just never go away. One of them is the idea to impose term limits on members of Congress. Once a big deal in the 1990s, discussion about imposing term limits has died down to a whisper in recent years. But the idea is apparently not dead.
- More Columns Headlines
-
