If you’re thinking about investing in the tech industry and have considered buying shares in Facebook, now known as Meta, there are a few things you should know before making a decision.
Facebook has a track record of making money consistently, and that might seem like a good reason to invest your money with lower risks.
However, investing in stocks, including Facebook’s, isn’t as simple as jumping in, collecting profits, and jumping back out. It involves careful consideration.
Before we get into it, it’s worth noting that investing isn’t a guaranteed path to instant wealth. Even at EmmarniTechs, we’re not millionaires just from investing.
Now, let’s focus on what’s important for you. There are risks associated with buying Facebook stocks, similar to any other company‘s stocks.
So, if you’ve made up your mind to buy that Facebook stock, let’s go through some key points to be well-informed before moving forward.
In 2015, Facebook’s stock was trading at $90, and it surged to $200 in 2018 before hitting a pause after the company’s earnings were made public.
As mentioned earlier, buying stocks involves risks that need addressing before you dive in. Let’s explore these risks in the following sections.
Table of Contents
Depending On Ad Revenue
Facebook primarily generates its revenue from selling ads, with approximately 90% of its income coming from ad sales.
However, this dependence on ads for revenue has now increased to nearly 100%. When you invest in Facebook stocks, you are essentially relying on ad sales to drive your profits.
It’s important to note that a company relying heavily on a single source of revenue, such as ads, can pose risks for investors.
Just as an investor concentrating on only one type of investment faces vulnerabilities, a company overly dependent on a particular revenue stream may encounter challenges if that source is disrupted or faces changes.
This aspect underscores the significance of diversification in both investing and business strategies. Relying solely on ad revenue can make the company vulnerable to shifts in the advertising landscape, changes in user behavior, or regulatory challenges.
As an investor, being aware of this concentration of revenue sources is crucial when considering the potential risks associated with investing in Facebook stocks.
Competition Of Social Media Platforms
Facebook has a reputation for acquiring companies that appear to be its competitors. It’s a strategic move to eliminate potential rivals, and many would consider doing the same if they had the financial means to buy out competitors.
Avoiding market share battles is a logical business strategy. However, it’s worth noting that Facebook can’t buy out every competitor.
For instance, Snapchat rejected Facebook’s buyout offers twice, each worth about $3 billion. Twitter also turned down such propositions.
While it’s unlikely that Facebook will fade into history in the tech world, it’s essential to acknowledge that even once-dominant forces can see a decline.
MySpace serves as an example. Although it was once a significant player on the internet, few people recognize the name today.
Facebook, with its substantial financial resources and a user base exceeding 2 billion, stands a better chance of enduring changes in consumer preferences.
Nevertheless, the tech landscape is dynamic, and history demonstrates that consumer tastes can shift unexpectedly.
Market Risk
One of the biggest risks that any stock can suffer is the market risk. The NASDA is known to have lost more than 75% of its value when the dot-com crisis emerged.
This shows that one cannot predict accurately to go in their favor at all times.
Regulatory Risk
One form of risk that any investment, including Facebook stocks, can face is regulatory risk. Facebook operates in a technology-driven space, particularly within the realm of social media, which is currently not heavily regulated.
However, understanding the American industry landscape reveals that industries often become subject to regulations over time.
When regulatory changes occur, investors might find themselves facing Uncle Sam, ready to claim a portion of their profit earnings typically around 30% for government expenditure.
It’s a reality that most investors harbor a dislike for regulations, as they introduce uncertainties and potential financial implications.
Investors should be mindful of the evolving regulatory landscape, as changes in regulations can impact the profitability and operational dynamics of companies like Facebook.
Being aware of regulatory risks is crucial for making informed investment decisions.
Conclusion
So these are some of the things you have to watch out for when you decide to buy Facebook stocks. It is not just about Facebook stocks but rather any other tech company out there that you may have been thinking of purchasing stock from.
Make sure to do proper investigations and analysis before you go into the investment
