Are We Certain Facebook Is Doomed, Vivek Wadhwa?

Vivek Wadhwa, a research professor at Stanford University, published a diatribe on LinkedIn a few months ago titled, "Facebook Is Doomed.” Contributing to the debate on the medium- and long-term sustainability of one of the biggest social networks is undoubtedly a healthy endeavor. However, this excessive public statement distinguishes itself with rather frivolous arguments on Wadhwa’s part.

VampireWomanOutOfCoffin650Vivek Wadhwa, a research professor at Stanford University, published a diatribe on LinkedIn a few months ago titled, “Facebook Is Doomed.” Contributing to the debate on the medium- and long-term sustainability of one of the biggest social networks is undoubtedly a healthy endeavor. However, this excessive public statement distinguishes itself with rather frivolous arguments on Wadhwa’s part.

Wadhwa took a strong stance by concluding, in a much-learned fashion, with the statement, “You can look at Facebook as a classic example of what not to do when you achieve success.”

First and foremost, it is to be noted that this paper I stumbled on recently was originally written in September 2013, and since then, Facebook has continued to expand its hold on our usage and advertising budgets.

However, given the credibility of the author, it is necessary — or, at the very least, interesting — to examine his analysis and hypothetical theorization of a future without Facebook, a colossus with feet of clay whose adverse fate is apparently inevitable.

Let us take a closer and more detailed look at each of his points.

Facebook is squeezing every penny it can out of its customers to justify its inflated stock price: Facebook, in recent times, has been valued at $164 billion — a value that is 20-fold its revenues and almost 110 times its net income in 2013. In comparison, Google is valued at $394 billion, or 6.5 times its sales and 30 times its net income; Microsoft at $303 billion, or 3.6 times its cumulative sales and more than 13-fold its net income; and Apple at $464 billion, which is 2.7 times its turnover and 12.5 times its earnings, all with reference to their results of the 2013 fiscal year.

Is Facebook overvalued? It’s a possibility. Either there will be a correction in its valuation, or at least the stock price will stop rising even if revenues and profits continue to increase. However, given current figures, can one deduce that Facebook is already condemned? Facebook has exhibited unquestionable financial health, and it’s been given all the green lights.

The number of daily active users continues to increase from 718 million in the fourth quarter of 2012 to 757 million in the fourth quarter of 2013. Revenue increased from $5 billion to $7.9 billion between 2012 and 2013, profits went from $50 million to $1.5 billion in the same period of time, and more than $500 million in profit was made in just the last three months of 2013. Average revenue per user, another key indicator, also increased from $1.54 to $2.14 between the fourth quarters of 2012 and 2013.

If this were what one refers to as scraping the bottom of the barrel, a plethora of other companies wouldn’t mind doing the same.

Unless it happens to luck out by buying the right company, it seems to me, Facebook is doomed: This criticism was based on the belief that Facebook would not have been able to make a successful transition to mobile, that it was losing its “cool factor” among teenagers (three years ago, iStrategyLabs revealed that there had been a reduction of 3 million users between the ages of 13 and 17 over the past three years in the U.S. on Facebook), and that salvation would only come from the acquisition of new players that were “mobile-first” or “mobile only.” The discussions with Snapchat failing to bring the grist to the mill further reinforced this prediction.

However, Facebook had taken on the challenge and has proven the prediction wrong with its number of daily active mobile users increasing from 374 million in the fourth quarter of 2012 to 556 million in the fourth quarter of 2013. An average of one minute out of every five spent on the mobile Web is on Facebook, an absolute world record. In the fourth quarter of 2013, more than one-half of revenue came from mobile, whereas it was practically nothing a year earlier.