Facebook: Being 'MySpaced' By Google?

NEW YORK (TheStreet) -- At times it seems the sheer size of social media giant Facebook (FB) has proven to be too much for many analysts and investors to wrap their heads around, to the extent that the legitimacy of its base of 900 million users continue to come into question. For skeptics, the logic has been: "Since it clearly botched its IPO to the point where its value appeared inflated, what else could it have possibly been hiding?"

The answer is nothing. Facebook has been completely open and honest about what it reports and has even acknowledged in SEC documents the likelihood that 5% to 6% of its accounts may be erroneous or duplicates.
Facebook's growth has slowed. Is Google the reason?

Lost faces
While researching the company's disclosures as well as recent Internet documents, I've discovered that these users just might have stopped growing. But what does it mean for Facebook and its investors? During that same span Google's ( GOOG) Google+ has continued to gain traction. So it's caused me to wonder: Despite the skeptics, has it really had a level of impact that can slow Facebook's growth? Dare I ask if Google could "MySpace" Facebook? As hard as that may be to believe, something is certainly affecting Facebook's growth momentum.

ComScore, a site that specializes in internet data and research, recently revealed a drop in Facebook's unique visitors. While it was not a significant drop, the research firm did suggest it would last longer than anyone could have anticipated. Has it finally happened? Has Facebook finally stopped growing? This saturation is something I didn't think would be possible for several more years. In a recent article I talked about Facebook's law of large numbers and essentially described the various demographic regions it still has yet to dominate. Although North America accounted for 50% of the company's revenue in the first quarter, optimism remains since it demonstrated an ability to expand overseas in areas such as Germany, Russia and South Korea, where it saw year-over-year growth of 47%, 74% and 57% respectively.

A Reuters article detailed how Facebook's unique visitors have been trending down over the past several quarters -- this according to another ComScore report. For example, in May, Facebook registered 158.01 million unique visitors. This number was lower than April and March, when the numbers arrived at 158.7 and 158.9 million respectively. A more thorough glance at the report revealed that it is possible that Facebook's growth had peaked as far back as seven months ago (November) when during the same report it registered a unique visitor number of 166 million.

Growth is something Wall Street not only craves but demands in large quantities. For Facebook and sites such as Twitter and Google, "growth" is measured not only by how many unique visitors the site acquires but also by how long they remain active users. Largely because of its 900 million users it was somewhat justifiable to price Facebook at more than $100 billion. The thinking was although the company had not established a discernible working business model, it knows how much money are in the wallets of the 900 million and where they like to spend, and at some point the company would figure out how to get that money for itself. (Though it has made some strides, we're still waiting.)

Saving face
For Facebook, this revelation could not have come at a worst time -- particularly since its stock price continues to face valuation issues. If I were an investor I would be concerned about not only its growth potential but also for its ability to keep the interest of the users it has.

Though its growth may be slowing slightly it is hard to imagine Facebook is going anywhere, as much as Google would love for that to happen. First, unlike the real MySpace, Facebook continues to evolve; it tweaks the site constantly to keep users engaged. Also, it helps that it has two behemoths in its corner in Microsoft ( MSFT) and Apple ( AAPL) -- particularly the latter, which has just adopted Facebook into its upcoming OS.

I think Facebook being integrated into the top-selling smartphone and tablet on the market all but assures it will be around for a while -- much to Google's dismay. Apple has realized that consumers have developed an addiction to two things: their smartphones and social media. It understands that the technological winner will likely be the company that can be the effective supplier of both, and to that end it has placed a stake in Facebook -- if for no other reason than to annoy Google and put an end to the momentum Google+ has obtained.

Bottom line
There could be many reasons why Facebook's numbers have slowed of late. It could be seasonal or it could be recent unwelcome tweaks to its privacy policy. Or it could just be that the laws of large numbers have finally caught up to it. Who knows? Regardless of the reason, Facebook is a young company, and one that will have many opportunities to overcome its growing pains.

At the time of publication, the author was long AAPL and held no positions in any of the stocks mentioned, although positions may change at any time.

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