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Four Reasons to Avoid Facebook Stock

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If you won't be in on the IPO, here are some pretty good ways to explain why.

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MINYANVILLE ORIGINAL Does Facebook (FB) fever leave you cold? Did E*TRADE (ETFC) deem you unworthy of participating in this Friday's initial public offering (IPO), or perhaps your broker laughed in your face? Here's a dose of medicine to turn those blues into a happy grin: A roundup of bad stuff about Facebook. And this is just from the last few days of research, chatting, thinking and posting about the most talked-about IPO since Google (GOOG) in 2004.

Its Own Users Don't Trust Facebook
Three out of five Facebook users say they don't trust the company to protect their personal information, according to a new poll from The Associated Press and CNBC.

The Trust Issue Will Get Worse
It's a delicate dance for Facebook, notes the New York Times. As a public company, it will need to keep feeding those hungry shareholders with more revenue every quarter. That means coming up with new and more sophisticated ways to gather, parse, and exploit personal information for use by advertisers and marketers. And that risks turning off its users even more, not to mention the would-be regulators of Internet privacy.

It's Not Good for General Motors
General Motors (GM), once again the world's biggest automaker and still the nation's third-largest advertiser, will stop buying advertising on Facebook because it has not found that to be effective, according to a report released Tuesday by the Wall Street Journal. Citing anonymous sources, the report said the automaker would continue marketing efforts through its (free) Facebook pages.

Possibly because of the sensitive timing of the report, a company spokesman would confirm only that the company is "definitely reassessing" advertising on Facebook.

One interesting side note for marketing types: General Motors spends about $40 million annually on Facebook, but only $10 million of that goes to Facebook as ad payments. The other $30 million goes to the good folks who feed its free Facebook pages. This further validates the principle established in 1853 by the immortal Levi Strauss: If you want to make money during a gold rush, sell pants to gold miners.

It's a Recession Thing
The AP/CNBC poll quoted above also found that half of all Americans think Facebook is a fad. Among them is Elizabeth MacDonald, a columnist for Fox Business who suggests that its time is just about up.

That is, she argues that Facebook is a recessionary phenomenon. During the economic downturn, many of us had nothing better to do than hunker down at home and "network" in hopes of finding something better to do, or at least socialize at a distance and call it networking.

If it's almost time for a new fad, it might be another kind of social network, but almost certainly it will be something designed ideally for consumption on mobile phones, rather than designed for the Web and shrunk down to mobile app size. So far, Facebook is struggling to make any money off of that. TechCrunch argues that its announcement this week, that it has hired the entire team of engineers from the startup Lightbox, is an attempt to answer pointed investor questions about the success of its mobile app.

Weekly Web in Brief:

Groupon (GRPN) poked its nose out of the Wall Street doghouse on Tuesday and brandished a first-quarter report that included higher sales, lower marketing costs, and an 89% revenue increase. That beat analysts' expectations and raised optimism, but mostly the cautious kind. Groupon's hometown newspaper, the Chicago Sun-Times, details the concerns of analysts about the immediate issues facing Groupon. MarketWatch has the upgrade and downgrade action.

A Series of Unfortunate Distractions
Activist shareholder Daniel Loeb has finally gotten what he wanted: a seat on the Yahoo (YHOO) board for himself and two of his picks. Plus, his Third Point LLC also made about $122 million on paper, according to BusinessWeek's calculations, since winning the fight he picked with the company and its leadership.

Newly-named interim CEO Ross Levinsohn acknowledges the "unfortunate and serious distractions surrounding our senior leadership" in his first memo to Yahoo staff, which was leaked immediately to allthingsd.com.

The distractions culminated with the departure of ex-CEO Scott Thompson for claiming that he majored in computer science and accounting at college when he really only majored in accounting. Loeb uncovered that bit of dirt.

Now that that's settled, maybe Loeb & Co. can negotiate a price for the company's 25% stake in Chinese Internet giant Alibaba (ALBCF.PK), which is probably a bigger priority for other shareholders.
No positions in stocks mentioned.
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