Is Facebook Inc (NASDAQ:FB) About To Crash?EMAIL

Many people are worried that Facebook Inc (NASDAQ:FB) might see a crash in its revenues due to the fact that it has a number of venture backed clients. The chief executive of the company, Mark Zuckerberg, has not revealed the exact figures of startups that the company has as its clients; however, research firms are of the view that the number is quite up. This reliance on venture capital for ads revenue can negatively affect the company.

A similar situation prevailed in the market in 1999, when Yahoo witnessed a collapse due to its reliance on small tech firms for ad revenues.

The platform director of Facebook Inc (NASDAQ:FB), Julien Codorniou, who is responsible for the operations of company in the regions of Africa, Middle East and Europe, commented on the news and said that any such idea that Facebook’s revenues will crash in the near future is far-fetched. According to him, there is a misunderstanding in the market on the way the company sells ads to the startups.

Julien further said that the ads bought by small tech firms are in a way funded by the money that those companies generate; if they keep on making money, they keep on buying ads.

He further said that he cannot name even a single European tech firm that would want to spend its money on ads that would not turn out to be profitable.

Nonetheless, the possibility of VC money getting shrunk still exists in the market. A number of research firms have noted a boom in the technology sector of the industry mainly because the interest rates are very low, and not because the tech firms are doing incredibly well. Eventually, the rates will go up and the VC money will exhaust.

And when that happens, the tech boom will start going in a backward cycle.

Facebook ads, on the other hand, are installed through mobile apps and they have a potential of insulating the company rather than exposing it to a VC crisis.

So, for instance, if you have invested $5 in the adds, and you receive benefits of $10 due to these ads. Chances are that you will invest again in the firm in order to make more money. If, however, your investment of $5 only results in total benefits of $3, you will not buy the ads.

The Chief Operating Officer of Facebook Inc (NASDAQ:FB), Sheryle Sandberg, tried to make this above cycle clear in the minds of the investors. She further said that the company is advertising tech and consumer firms; customers, upon seeing the ads, visit their stores and buy their products. Another company which uses the same technique is Twitter Inc. (NYSE:TWTR).

Coming to the stock prices of Facebook Inc (NASDAQ:FB), the company, on the last trading day, November 6, 2014, started its stocks at a price of $74.89 and closed at a price of $75.26, after hitting the highest figures of $75.60. Facebook has a market capitalization of $209.06 billion.