Way back on July 19, 2012, I told readers to avoid Facebook’s (FB) stock “like the plague.”
Apparently, I was on to something.
Now, I’m not talking about the fact that – within weeks of my stern warning – shares dropped 40% to hit an all-time low.
I’m talking about the latest research out of Princeton, which went viral last week.
“Ideas, like diseases,” wrote John Cannarella and Joshua A. Spechler, “have been shown to spread infectiously between people before eventually dying out.”
Or, more simply, infectious diseases like the bubonic plague and social networks like MySpace behave in similar ways. Both spread rapidly and then die out quickly.
The implication?
Based on the “adoption and abandonment dynamics” of social networks, the researchers predict that Facebook “will undergo a rapid decline in the coming years, losing 80% of its peak user base between 2015 and 2017.”
Newsflash: Forget waiting until 2015; the decline is already unfolding. And that, my loyal readers, means it’s high time for us to position our portfolios to profit from the impending doom.
Debunking Princeton… or Not!
Obviously, the dire predictions from the Princeton researchers didn’t sit well with Facebook executives. Before long, Facebook’s data scientist, Mike Develin, launched a tongue-in-cheek rebuttal. In short, by using the same “robust methodology” as the Princetonians, Develin declared (emphasis added), “Our research unequivocally demonstrated that Princeton may be in danger of disappearing entirely.”
Good one!
But I’m afraid that even if Develin is right – and there’s only a flimsy connection between infectious diseases and social networks – there’s no refuting these cold, hard usage facts from iStrategy.
Since 2011, they found that 4,292,080 high school users and 6,948,848 college-aged users went missing on Facebook. That’s a total body count in excess of 11.2 million.
According to another study, funded by the European Union, young Facebook users aren’t “just on the slide… [They're] basically dead and buried.”
Fear not. Their bodies aren’t actually buried anywhere. They’ve just migrated to new social networks – like Snapchat, Twitter (TWTR), Instagram and WhatsApp. (Whisper.sh could be their next destination.)
Heck, even President Obama notices it. He recently remarked in the presence of The Atlantic’s Robinson Meyer that “it seems like they don’t use Facebook anymore.”
No sir, they don’t.
And Facebook is smart enough to recognize its diminishing relevance, too. That’s why management keeps trying to emulate wildly popular features from other social networks, like incorporating #hashtags and a “trending” section (a la Twitter).
It’s all for the sake of preserving engagement – a critical ingredient for a business model that relies so heavily on serving up advertising to users.
Facebook is obviously not afraid to take more drastic defensive measures, either. Like simply buying the next up-and-coming social network. You’ll recall, Facebook scooped up Instagram for $1 billion in 2012.
But that tactic doesn’t appear to be working anymore. Late last year, Snapchat spurned a $3-billion offer from Mark Zuckerberg.
Bottom line: Come February, Facebook turns 10. In social network years, that’s an eternity. And while it’s in no immediate danger of extinction, signs of a mass exodus are, indeed, materializing.
“Facebook fatigue” is setting in, if you will. As the youngsters continue to flee for newer, more novel social networks, it’s only a matter of time before the underlying business fundamentals – and, in turn, the stock – begins to suffer.
If I were you, I’d make a low-risk, high-reward bet on a Facebook flop by buying some January 2016 $40 put options. Rest assured, I’ll check back in before they expire to write Facebook’s obituary and let you know it’s time to cash out your winnings.