The Beginning of the End for Facebook

NEW YORK ( TheStreet) -- I've never been a big fan of Facebook ( FB), definitely not the stock , and perhaps to a lesser extent, the application. The stock is ridiculously priced at 208 times trailing earnings, 48 times 2014 consensus earnings estimates, more than 10 times book value, and 18 times revenue. Keep in mind that these sentiments are from a value investor, who simply can't fathom those multiples, and growth investors would make the argument that those measures are irrelevant in Facebook's case.

Indeed, the stock has been on a tear since mid-July, following a better-than-expected quarter after an aggressive push into mobile advertising, and shares are up nearly 80% since then. The stock has finally managed to eclipse its intraday high of $45 from its very first day of trading on May 12, 2012 while the company now boasts of having more than 1 million advertisers. That's impressive, and one of the reasons that investors are re-engaged.

FB Chart FB data by YCharts

There is no doubt that some investors have made money from owning the stock, and I am not discounting the possibility that shares may run even higher. We've seen countless examples of overvalued companies continuing to head higher -- well beyond their true value. It's yet another example of the inefficiencies that make the markets and investor psychology so fascinating. Investors will continue to buy names, such as Facebook, that are priced for perfection.

In the past few days, two things happened, neither of which relates to the company's financials, that have me again questioning Facebook's prospects. Granted, these are completely anecdotal in nature and their relevance is more from the gut, than from the mind. In fact, I was not even planning on writing about Facebook today, but can't help myself.

The first thing was an article in our newspaper entitled " Facebook's Fall From Cool," written by a local high school student. In the article, the young author proclaims that Facebook has become an "obligation," as opposed to a "source of entertainment."

Now, that may be nothing new. The article itself caused me to quiz my own teenagers, who told me in no uncertain terms, that kids have turned away from Facebook, and would rather use Twitter or Instagram. Now, the fact that Facebook bought Instagram last September is certainly not lost on me. The question is: when will the kids also tire of Instagram, and what will take its place? Perhaps Facebook will be the force behind the next hot social media application, but that is presuming a lot.

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